Choice Hotels International, Inc. Aktie

Hello, and welcome to the Annual Meeting of Shareholders of Choice Hotels International, Inc. Please note that today's meeting is being recorded. [Operator Instructions]

It is now my pleasure to turn today's meeting over to Jeff Lobb, Senior Vice President, General Counsel and Secretary of Choice Hotels International, Inc. Mr. Lobb, the floor is yours.

Thank you. Good morning, everyone. Welcome to Choice Hotels International's 2026 Annual Shareholders Meeting. I'm Jeff Lobb, the company's General Counsel and Secretary. I'm pleased to welcome everybody who's called in to join us this morning. As we've done in the past, at the conclusion of our formal portion of the meeting, we'll have a short Q&A session with Dom Dragisich, our newly appointed Interim CEO. Shareholders who've signed in using their control number can submit questions through the meeting portal, and we will endeavor to answer appropriate questions as time permits.

I am now calling this meeting to order. The Choice Hotels' Board of Directors set March 23, 2026, as the record date for this meeting. The only holders of shares of our common stock at the close of business on that record date were entitled to notice of and to vote at this meeting. On the record date, there were 45,757,096 shares of our common stock outstanding and entitled to vote. I'd like to welcome the members of our Board of Directors that are present this morning at our meeting, and that includes our esteemed Chairman, Stewart Bainum, Jr.

I'd also like to welcome Pam Masterson and Jordan DeDona of Ernst & Young, company's independent registered public accounting firm. Sharon Hull, our newly appointed Assistant Corporate Secretary, has been appointed as inspector and judge of this election. Sharon has previously delivered her oath to the Chairman, and Sharon will now give us a report on the attendance.

Thank you. A total of 43,441,614 shares of Choice Hotels International, Inc.'s common stock are present at this meeting in person or by proxy, representing approximately 95% of the outstanding common stock of the company. Therefore, a quorum is present, and this meeting is authorized to transact any business that may properly come before it.

Thank you, Sharon. We've delivered to our Chairman for filing affidavits to the effect that on or about April 22, 2026, a notice of this Annual Meeting of Shareholders, proxies and the proxy statement were mailed to all shareholders of record on the record date. A complete list of shareholders who own shares of the company's common stock on the record date, which was duly certified by the company's transfer agent, Computershare, was available for inspection by shareholders on the meeting portal.

It's now my pleasure to introduce Stewart Bainum, Jr., Chairman of the Board of Directors. In accordance with the bylaws of the company, Stewart will preside over the meeting. Mr. Chairman?

Thanks, Jeff, very much, and welcome, everybody, to Choice Hotels Annual Shareholders Meeting. Before we get into the voting, I just wanted to acknowledge the company's announcement yesterday regarding a leadership transition. I'm going to speak a little more about the changes after we've completed the formal voting portion of the meeting. But let's now proceed to the business of the meeting. The polls are now open, and I'm going to introduce each item of business. I think there's 4 items of business here before us this morning.

First, though, a quick housekeeping note, and this is important. If you previously sent in your proxy or have already voted by phone or Internet, you do not need to take any further action unless you wish to change your vote. Shareholders who have signed in using their control number and who have not yet voted or who wish to change their votes, you may do so by clicking on the Vote icon on the meeting portal and following the instructions there. Any votes received prior to the polls closing will be, of course, collected and delivered to our election inspector.

So we're going to begin with the election of 11 directors. Each will serve a 1-year term until the 2027 Annual Meeting or until their earlier resignation. Before we move to the vote, I'd just like to express my thanks to the current Board members for the significant contributions each of them provide to the company. I'm really honored, you'd expect me to say this, but it's really true. I'm really honored to serve alongside these individuals as Chair of the Board.

The Board has nominated the following individuals for reelection: Brian Bainum, I'm going to vote for him. William Jews, Monte Koch, Liza Landsman, Pat Pacious, Ervin Shames, Gordon Smith, Maureen Sullivan, John Tague, Donna Vieira and me, Stewart Bainum. If you're interested in learning more about the background of these individuals, if you're not that familiar with them, there's quite a bit of good information in our proxy statement.

So a majority of shares now is required to elect the nominees for director. Sharon, I think you have a count already because you've been counting these proxies the last few days. Could you report, please, on the preliminary results of the voting?

Of course. A majority of the shares represented at the meeting voted in favor of each of the nominees for election to the Board. Therefore, each of the 11 named nominees are elected for a 1-year term that expires at the 2027 Annual Meeting.

Thanks, Sharon. No surprises there, and congratulations to each on your election. Now secondly -- second item of business, as required by the Dodd-Frank Act, the second item is to seek a shareholder advisory vote regarding compensation of the company's executive -- named executive officers. The vote is advisory. However, the Board's Compensation Committee will certainly consider the outcome of the vote as it continues to think through the company's executive compensation program. Majority of shares represented at the meeting is requested. Sharon, you've got some results, if I may.

I do. A majority of the shares represented at the meeting voted in favor of the proposal. Therefore, the advisory vote on executive compensation has been approved.

Okay. Was it a close vote? Or was it a large majority?

A large majority.

Okay. Thank you. The third item on the agenda is to approve an amendment of the certificate of incorporation, increasing the Board size range from 3 to 12, which it currently is 5 to 15 members of the Board. A majority of the outstanding shares is required to approve the proposal. Sharon?

Thank you. The amendment to the certificate of incorporation increasing the Board size range from 3 to 12 to 5 to 15 was approved by a majority of the outstanding shares.

Thanks, Sharon. You're doing a commendable job, much appreciated. The fourth and last item on our business agenda is to ratify the appointment of Ernst & Young as the company's independent registered public accounting firm for the current fiscal year, the fiscal year ending December 31, 2026. The majority of shares represented at this meeting is requested. Sharon, what's the count on this one?

Okay. A majority of the shares represented at the meeting voted in favor of the proposal. Therefore, the appointment of Ernst & Young as the company's independent registered public accounting firm for the fiscal year ending December 31, 2026, has been ratified.

Great. Great job, Sharon. Thank you. There's no other business that has been brought before this meeting. So the polls are now closed and the formal business portion of the annual meeting is concluded. I just want to take a moment and recognize our announcement yesterday regarding leadership changes at the company.

First, I just want to thank Pat Pacious for his 21 special years of his very meaningful contributions at Choice, including his outstanding service as the President and CEO since 2017. Pat has led the company through really remarkable change and was a fierce leader during the pandemic for all our stakeholders, our franchisees, our associates and certainly our shareholders as well. So we will -- the company will be forever grateful to Pat as we transition to this next stage of the company. Happily, Pat has agreed to continue to serve as an adviser to the company through August and will be of invaluable assistance to Dom, our interim CEO.

And we're delighted to welcome Dom Dragisich as our Interim CEO and know Dom strategic financial and operational experiences of the company over the last roughly 9 years, I think, will ensure a smooth transition with continuing focus on executing our strategic priorities to deliver long-term value for all of our stakeholders, our franchisees, guests, associates and shareholders.

I'm going to turn things back over to you, Jeff, and I know you're going to facilitate the Q&A session. So thanks, [indiscernible].

Thank you, Stewart. As I previously mentioned, due to time limitations here this morning, we may not be able to address every question that we receive right now. It looks like we will have plenty of time. But if we don't, I apologize in advance if we don't get to a question that any shareholder submits. Just some legal housekeeping. Please note that Dom's remarks and any responses to shareholder questions may contain forward-looking statements. Actual results could differ materially from those projected or stated. We undertake no obligation to update or revise publicly any of the forward-looking statements, whether because of new information, future events or other factors, or we refer to the information contained on the slides on the web page that contain more information about risks that could impact our results.

Before we open up for Q&A, Dom, would you like to make any general remarks?

Sure. Thank you, Jeff, and a warm welcome to all of our shareholders for joining us today. On behalf of the entire Choice Hotels International team, thank you for your continued investment and confidence in our company. I'm excited to help drive the next phase of Choice's growth and look forward to collaborating with you, our shareholders as well as our amazing franchisees and associates. Choice Hotels continues to execute a clear strategy, drive franchisee economics and rooms growth to deliver high-quality earnings, strong cash flows and more durable shareholder returns.

In full year 2025, we achieved yet another year of record profitability, delivering adjusted EBITDA of $625.6 million, up 4% year-over-year. These results were driven by our higher revenue brand mix, continued portfolio optimization and the continued strengthening of our franchisee success system. In Q1 2026, we delivered record first quarter revenues of $340.6 million while driving strong development and RevPAR performance. In fact, we had the highest number of U.S. hotel openings in any first quarter over the last 5 years. And excluding the 2025 hurricane impact, we drove nearly 2% year-over-year RevPAR growth.

Additionally, our development pipeline is well positioned to drive future growth with 97% of the rooms in our higher revenue brands. Our pipeline properties are expected to be roughly 1.7x more accretive than our current portfolio. Our ability to create value starts with the strength of our franchisee model and ability to drive the right customer through the right channel for our owners. From revenue delivery and distribution to personalized operating support and targeted brand investments, we are continuously strengthening our franchisee success system. The work we have done over the past several years has positioned us as a more accretive asset-light company.

As we move forward in 2026, 3 main themes will capture the essence of what's happening at Choice Hotels. First, we're seeing steady net rooms growth in the U.S. with more hotels opening and fewer exits from our portfolio. Second, franchisee unit economics are improving, meaning our owners are seeing better returns, thanks to stronger revenue and lower costs. And third, our capital intensity is declining, which means we're investing smarter and returning more value to our shareholders. Our growth would not be possible without the dedication and commitment of our franchisees, the Choice Hotels associates who support them and our Board with its leadership and oversight.

So thank you to all of them. And thanks again to our shareholders for your trust in Choice Hotels International. And now we're happy to answer any questions. Jeff?

Thanks, Dom. We've got a question here about artificial intelligence. Can you talk about how Choice is utilizing AI in our business?

Sure. Absolutely, too, Jeff. And it seems to be the question of the day, every day. So yes, we utilize AI really in every facet of our business from how our guests shop for, how they book our hotels really with greater ease to how we drive our owners' unit economics by developing, deploying cutting-edge AI-driven capabilities to really help them run their businesses more effectively. We also do it by improving how our associate productivity increases day in and day out. A great example of this, Jeff, is really the recently launched platform called EasyBid to capture more group business. It's really enabled our hotels to improve their response times to group RFPs by about 30% is what we're seeing in the early results.

And we've already seen that translate into conversion rates that are about 250 basis points higher actually. Just last week, we launched Choice Hotels Business Direct to win more midweek business from small- and medium-sized businesses. And nearly -- when you take a step back and think about it, nearly half of the U.S. workers, they're employed by SMBs. And so these new AI-enabled digital booking platforms, they really enable these businesses to book stays direct on choicehotels.com. So those are just 2 of many examples of how we're really harnessing AI to drive demand, really drive that top line for our hotels.

Thanks, Dom. It appears as if we do not have any further questions. So with that, that concludes our Q&A session as well as today's meeting. Once again, thanks to everybody who called in to participate in our virtual meeting. The meeting has concluded. Thank you.

This concludes the meeting. You may now disconnect.

_Ladies and gentlemen, thank you for standing by. Welcome to Choice Hotels International's First Quarter 2026 Earnings Call. [Operator Instructions] I will now turn the call over to Allie Summers, Senior Director of Investor Relations. Please go ahead.

Good morning, and thank you for joining us. Before we begin, please note that today's discussion includes forward-looking statements as defined under U.S. securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. For more information, please refer to our filings with the SEC, including our most recent Forms 10-K and 10-Q. These statements speak only as of today, and we undertake no obligation to update them.

A reconciliation of any non-GAAP financial measures referenced in today's remarks is included in our earnings press release available on the Investor Relations section of choicehotels.com.

Joining me this morning are Pat Pacious, our President and Chief Executive Officer; and Scott Oaksmith, our Chief Financial Officer. Pat will discuss our business performance and strategic progress, and Scott will review our financial results and outlook.

And with that, I'll turn the call over to Pat.

Thank you, Allie, and good morning, everyone. We appreciate you joining us today. We delivered first quarter results in line with our expectations, signaling an inflection point in underlying trends toward rooms growth, RevPAR improvement and lower capital intensity. The work we have done over the past several years has now positioned us as a more accretive asset-light growth model with significantly lower capital intensity and stronger unit economics, which is reflected in the continued expansion in our average royalty rate. Taken together, this supports more consistent earnings growth and increasing returns to shareholders.

At Choice, our strategy is built on a straightforward, repeatable model, improving franchisee economics drives demand and rooms growth, which we convert into higher quality earnings and free cash flow. We reinvest that cash in high return, capital-light opportunities and return excess capital to shareholders in a disciplined and increasingly predictable way. We are now seeing this translate more clearly into our results.

First, U.S. net rooms growth is inflecting and improving sequentially with gross openings up 32% year-over-year, first quarter hotel openings at a 5-year high and exits at their lowest level since 2023. Our U.S. pipeline is also expanding sequentially, providing greater visibility into future growth. At the same time, our international portfolio continues to scale as an additional growth engine.

Second, franchisee unit economics are improving, driven by stronger revenue delivery and lower hotel development and operating costs. This is resulting in stronger returns across the system, reflected in our strong voluntary franchisee retention rate and continued expansion in our average royalty rates with improving RevPAR now flowing through a higher quality, more revenue intense system.

And third, as we move beyond a period of elevated investment that has achieved its strategic objectives, capital intensity is now declining materially with development outlays coming down. As market conditions continue to improve, we intend to accelerate capital recycling, further enhancing our ability to return capital to shareholders, and drive a more consistent capital return profile. We were pleased with the quarter and in the 46 states not impacted by hurricanes, RevPAR was up 1.8% year-over-year, driven by gains in occupancy.

Looking ahead, as we move past last year's hurricane impact, demand continues to benefit from tax refunds and is expected to be further supported by event-driven travel this summer, such as the FIFA World Cup and the U.S. 250th anniversary. More broadly, we are seeing strength across our core segments, supported by several structural trends that are already driving performance today. Affordability remains a key factor in travel decisions, aligning directly with our value-oriented brands and core middle-income customer. And we are seeing continued strength in small and midsized business travelers and group demand. Employment growth continues in sectors such as health care, construction and utilities, driving workforce based travel from customers who rely on our hotels.

In addition, repeat stays from the rising number of retirees and road trips provide a stable base of demand. We are also seeing a shift in guest expectations toward accommodations that feel more like home, supporting strong demand for our extended stay portfolio. Importantly, these are not future tailwinds. They are trends we are seeing in the business today, contributing to a stable and diversified demand base across cycles.

So when you step back, the story is clear. Room growth is inflecting, unit economics are improving and capital intensity is declining, positioning us to deliver more consistent earnings growth over time. Importantly, we believe we are uniquely positioned to capture demand in segments where we have a structural advantage.

Let me build on that by focusing on what is driving the durability of our room growth. Our growth is driven by a conversion-led development model, where we have a clear advantage in speed and capital efficiency. Our brand portfolio aligned with both guest demand and owner returns and improving unit level economics that continue to drive developer demand across our core segments.

Globally, we grew rooms by 1.7% year-over-year, with growth improving sequentially. In the U.S., developer demand remained strong with franchise agreements awarded up 65% year-over-year in the first quarter. We have made meaningful progress in reducing the time from signing to opening, enabling faster revenue generation. In the first quarter, U.S. conversion room openings increased 59% year-over-year, and approximately 60% of franchise agreements executed in the quarter are expected to open this year, providing strong near-term visibility into growth. Importantly, a meaningful portion of our openings come from conversions that never appear in our quarter-end pipeline, underscoring the speed of our model. We also focus on segments where we are structurally advantaged. Extended Stay remains a key growth driver with 11 consecutive quarters of double-digit rooms growth, and now represents more than 40% of our U.S. pipeline. Supported by strong unit-level economics, a dedicated extended stay field organization and a leading hotel pipeline, we are well positioned to extend our leadership in this category.

In mid-scale and economy transient, we are seeing strong developer interest with U.S. franchise agreements awarded up 38% year-over-year and pipelines continuing to build, driven by improving unit level economics and owner returns. As part of our focus on enhancing franchisee returns, we have reduced the cost to build and convert hotels, including lowering prototype costs by up to 25% across key mid-scale brands and simplifying property improvement requirements. A clear example is Country Inn and Suites by Radisson, where the redesigned lower-cost prototype is driving renewed momentum with franchise agreement growth of 50% year-over-year for the brand.

In economy transient, our portfolio strategy continues to improve system quality and guest satisfaction, supporting continued developer engagement with the pipeline increasing 26% sequentially. International continues to scale as an important growth engine with net rooms up 13% year-over-year in the first quarter. In Canada, we are seeing strong early returns following last year's transition to a direct franchising model with net rooms growth of over 30%, the strongest performance in more than a decade, and a pipeline up 55% year-over-year, alongside improving revenue and guest satisfaction. As we continue to enhance the choice value proposition internationally, we see a meaningful opportunity to drive both system growth and stronger franchise economics over time. Our hotel development pipeline remains a powerful engine for future earnings growth.

Importantly, 97% of rooms in our global pipeline are in higher revenue brands, which we expect to be approximately 1.7x more accretive than our current portfolio. Taken together, these trends reinforce our confidence in our ability to deliver durable global net rooms growth, supported by a structurally advantaged portfolio, a high-quality and more accretive pipeline and a development model that enables consistent, capital-efficient expansion.

Turning to unit economics. Our growth is supported by structurally improving franchisee economics driven by enhancements to our revenue generation engine and lower franchisee operating costs. Importantly, the mix of customers we are attracting is becoming more valuable over time. The segments where we are growing, business travelers and groups, generate higher spend per stay while loyalty is driving more repeat stays, together translating into stronger franchisee economics. Loyalty is a key driver of our higher quality demand and customer lifetime value. Our Choice Privileges program now exceeds 75 million members, up 7% year-over-year. Earlier this year, we launched the next evolution of the program, building on the strong momentum we delivered last year through continued enhancements designed to further strengthen engagement and drive repeat stays. We are already seeing this translate into our results, with loyalty contribution increasing over 300 basis points in March year-over-year as new members generated higher revenue per member than prior year cohorts.

In business and group travel, we continue to see strong performance with small and midsized business revenue up 14% and group revenue up 9% year-over-year, supported by recurring event-driven demand such as youth sports. This performance reflects our ability to effectively capture and convert these higher-value demand segments across our platform.

Technology is an increasingly important differentiator for choice. We have a long-standing advantage, having been an early mover in migrating both our infrastructure and data to the cloud, which underpins how we deploy AI across our business. That foundation enables us to move faster, deploy capabilities at scale and translate innovation into real business outcomes for our franchisees. We are already seeing this in action. For example, our recently launched AI-enabled easy bid platform is improving response time to group RFPs by approximately 30%, which is translating into conversion rates that are roughly 250 basis points higher and driving incremental group business for our franchisees. Through our long-standing partnership with AWS, we are the first major hospitality provider in the U.S. to standardize on a common AI foundation, allowing us to move beyond pilots and rapidly deploy capabilities across our business, embedding them across guest experience, franchise operations and distribution. We are also extending these capabilities through our partnership with Salesforce, where we are deploying intelligent agents across our field organization to improve franchisee operations, strengthen how our hotels capture group demand and enable faster, more data-driven decisions, giving us the flexibility to rapidly deploy and scale new capabilities across our platform. Together, these capabilities are improving franchisee returns and driving continued expansion in our average royalty rates.

Looking ahead, Choice is well positioned for continued growth with a clear path to more consistent, higher-quality cash returns. U.S. rooms growth is inflecting. Unit economics are strengthening and capital intensity is declining. With a structurally advantaged higher-quality portfolio of hotels, a more accretive pipeline, a capital-light model and a differentiated cloud-based technology platform, Choice is positioned to deliver durable earnings growth and create long-term shareholder value.

With that, I'll turn the call over to Scott.

Thanks, Pat, and good morning, everyone. Let me start with our first quarter results. For the first quarter, revenues, excluding reimbursable revenue from franchised and managed properties increased 3% year-over-year to $217 million, driven by global rooms growth and expansion in our average royalty rate. Of particular note, international performance was strong, with revenues, excluding reimbursable revenue from franchised and managed properties increasing 63% year-over-year. Adjusted EBITDA was $126 million compared to $130 million a year ago and adjusted earnings per share were $1.07 compared to $1.34 a year ago. The year-over-year decline in adjusted EBITDA primarily reflects the timing of certain SG&A costs. The decline in adjusted EPS further reflects a temporary adjustment to our effective income tax rate in the first quarter. These items were anticipated and are expected to normalize over the balance of the year, consistent with our full year guidance. As a result, we are maintaining our outlook across all key metrics.

Let me now turn to the key drivers of our performance. Three themes shaped our first quarter results. First, U.S. net rooms growth improved, supported by strong openings and lower exits. RevPAR trends improved through the quarter. And finally, capital intensity declined as investment in Cambria and Everhome has achieved the strategic objectives and is now being significantly reduced.

Let's start with our net rooms growth. In the first quarter, we grew global rooms 1.7% year-over-year, led by a 2.5% growth in our higher revenue segments, and highlighted by a 37% increase in room openings. Developer demand remained robust with global franchise agreements awarded up 72% year-over-year. Importantly, in the U.S., performance improved meaningfully with nearly 6,000 gross rooms opened in the quarter, and net exits declined 52% year-over-year and improved sequentially, reaching the lowest level in recent years. As the quarter progressed, hotel development momentum accelerated with March accounting for approximately 70% of first quarter U.S. franchise agreements executed. Growth was broad-based, led by extended stay and strong momentum in mid-scale.

Conversion activity remains a key driver of our growth, expected to account for over 80% of openings for the full year. U.S. conversion franchise agreements increased 63% year-over-year, while the U.S. conversion pipeline grew 17% year-over-year and expanded sequentially, reinforcing our visibility into future openings. Relicensing activity increased significantly year-over-year, reflecting both brand strength and continued franchisee confidence. Taken together, these trends reinforce our expectation that U.S. net rooms growth returns to positive territory in 2026, with sequential improvement already evident in the quarter. International growth also remains robust.

Turning to RevPAR. Our global RevPAR declined 80 basis points year-over-year on a currency-neutral basis in the first quarter, primarily reflecting the lapping of hurricane-related impacts in the prior year. International RevPAR increased 2.6% year-over-year on a currency-neutral basis, led by strong performance in Canada and the Caribbean and Latin American region. In the U.S., excluding a 410-basis-point impact from prior year hurricane-related demand, first quarter RevPAR increased 1.8% year-over-year, supported by sequential monthly occupancy gains, an important leading indicator for future RevPAR performance. On a comparable basis, RevPAR turned positive in February and remained positive in March. Preliminary April trends remain positive, supporting our expectations for continued improvement. Performance continues to trend favorably relative to our expectations, supported by constructive underlying demand.

Moving to royalty rate, a key driver of our earnings growth. In the first quarter, we increased our U.S. average royalty rate by 11 basis points, reflecting continued growth in higher revenue brands and ongoing improvement in our franchisee value proposition. We remain confident in the trajectory of system-wide royalty rate expansion, supported by higher quality pipeline and ongoing investments in demand generation.

Turning to our partnership business, which remains a key priority. Franchisee-facing service offerings included within our franchise and management fees continue to gain adoption during the quarter, driving over 10% year-over-year revenue growth. These offerings are also supporting the continued expansion of our non-RevPAR franchise fees. Partnership revenues were $24.7 million in the first quarter compared to $25.4 million a year ago, primarily reflecting the timing of transactions in certain programs, resulting in some year-over-year variability. We continue to expect partnership service and fees to grow in the mid-single digits for the full year. Together, these revenue streams diversify our earnings base and represent an attractive high-margin growth opportunity over time.

Turning to capital. A key component of our strategy is the meaningful reduction in capital intensity as we move beyond the peak investment phase for Cambria and Everhome, both of which have now reached the scale to support ongoing asset-light expansion. Importantly, large-scale balance sheet-intensive brand incubation is no longer central to our model as we shift towards more capital-efficient ways to grow and scale our brands. With strategic objectives achieved, and peak investment winding down, capital deployment is declining and capital recycling is expected to increase materially. In the first quarter, we generated approximately $25 million of proceeds and reduced development outlays by 51% year-over-year, and we remain on track for net capital outlays of approximately $20 million to $45 million for the full year, approximately 70% lower at the midpoint than 2025 levels.

As hotel transaction activity improves, we expect additional opportunities to accelerate capital recycling, further expanding capital capacity. We ended the quarter with total liquidity of $474 million and net leverage of 3.2x adjusted EBITDA, comfortably within our targeted leverage range of 3 to 4x, and providing strong financial flexibility. In the first quarter, we used $23.2 million of cash in operating activities, primarily reflecting working capital timing and higher franchise agreement acquisition costs associated with a 37% year-over-year increase in global room openings. Operating cash flow is tracking in line with our expectations with variability driven by seasonality and timing. Our capital allocation framework remains disciplined and unchanged. Our first priority is to deploy capital to high return, capital-light organic investments that strengthen our brands and enhance franchisee economics, including our revenue engine and scalable technology capabilities. We then support a stable dividend.

Finally, we returned excess free cash flow to shareholders, primarily through share repurchases, supported by our expected free cash flow generation and consistent with our targeted leverage range. As part of our increased focus on shareholder returns this year, we are providing greater visibility into our capital return profile. We expect to repurchase between $175 million to $225 million of shares in 2026, supported by expected free cash flow generation and strong balance sheet capacity. Year-to-date through March 31, we returned $75 million to shareholders, including $62 million in share repurchases with 2.3 million shares remaining under our current authorization. Our disciplined capital allocation approach, together with the strength of our asset-light business model, positions us to improve free cash flow conversion, excluding franchise agreement acquisition costs over the next several years, moving towards 60% to 65%.

Before we open up for questions, I'll briefly cover our expectations for the remainder of the year. For full year 2026, we are maintaining our guidance across all metrics, including adjusted EBITDA of $632 million to $647 million and adjusted diluted earnings per share of $6.92 to $7.14. Our outlook reflects continued growth across higher revenue hotels and markets, royalty rate expansion, sustained international momentum and further contribution from partnership and non-RevPAR revenues. It also reflects continued cost discipline with adjusted SG&A expected to grow in the mid-single digits, supported by operating efficiencies across the business, including the scaling of AI-enabled tools. Our outlook excludes the impact of any additional M&A, share repurchases completed after March 31 or other capital markets activity. As we look ahead, we are well positioned to deliver more consistent earnings growth and stronger free cash flow, supporting long-term shareholder value.

With that, Pat and I are happy to take your questions. Operator?

[Operator Instructions] Your first question comes from the line of David Katz with Jefferies.

I'd like to just sort of talk about the aspirational levels of NUG out into the future, yours compared to sort of the peer set. What do you think the levers are? What do you think the prospects are? And how do you see Choice getting to accelerate NUG in the future?

David, great question. I mean when we look at our net unit growth, I mean, obviously, we saw in the quarter a sequential improvement as you know, very well. We are a conversion-led model, and that's really been the driver of growth and the speed and efficiency with which our conversion pipeline is moving. As we mentioned in the script, the conversion pipeline is up 17%. Franchise agreements are up 65% overall. And when we look at that visibility, it gives us a lot of confidence that this sort of inflection point that we're seeing in that rooms growth is happening. Keep in mind, the new construction environment has been very muted given the interest rate environment. So as we see new construction come back, those brands that rely primarily on that, we can see an acceleration in our net unit growth into the future.

So we feel really good about the inflection point that we've seen, particularly here in the U.S. We feel good about where the franchise agreements sold last year and again into the first quarter are and the fact that their conversions for the most part, really gives us a lot of visibility and confidence in getting those openings done this year.

Okay. And any -- just to sort of double back on a portion of my question. Is there a future at some point where NUG is a, call it, low to mid-single-digit number. And -- or should we look at this conversion-led model in a different context.

No, I think it is possible to get back to those levels that you're talking about when the new construction environment comes back. We are seeing, obviously, an acceleration in the extended stay segment. That has continued to be strong. I think as new construction comes back, that will only get larger. We've been kind of, as an industry, doing much more on the conversion side of the house. And I think the lack of supply growth will incent developers to come back as well as RevPAR strengthens into the future. So we do see an underlying trend in the future that can get us back to those higher levels.

And the next question comes from Daniel Politzer with JPMorgan.

This is Michael Hirsch on for Dan today. A question on consumer health, especially given the rising fuel prices in the U.S. Have you seen any impact on your bookings or more broadly to consumer sentiment?

Actually, Michael, we've seen kind of the opposite with what has happened in the Middle East that started in March, carried into April. And as we said in our remarks, March was a very strong [indiscernible] from our perspective...

You are now joining the meeting.

Are you still there, Michael. Operator, do you still have us on the call?

Yes. Please go ahead.

Okay. Michael, are you still there?

Yes, I'm here.

Okay. Sorry, there was a bit of a disruption there. Yes, I mean, I think we look at that -- the consumer has been pretty resilient given the rise in gas prices. We saw higher gas prices back in 2022. And that really didn't temper demand. As I said, we've seen in the last 2 months, a continuing strength in the consumer. I think the other things that give us a lot of positive feeling going forward is really the affordability trend that's going on in the country, that aligns very well with our value-oriented brands. We're seeing a shift in the workforce, as we mentioned in the remarks. You're seeing employment growth in sectors where people have to travel to do their work, and those travelers rely on our hotels. We're also seeing a shift in the way guests want their hotel room to look more like home and that helps our extended stay hotels. And then as we've talked on prior calls, we continue to see a rising number of retirees who have discretionary income, discretionary time. And we know we over-index on that type of guest as well. So we feel pretty good about the underlying trends that are supporting the RevPAR projections that we have for this year.

And just a follow up on Pat's point, when you really look at our business travel, it was really strong during the quarter. Overall, business travel was up 3%. And particularly, our small and medium business was up 14% and our group's business was up 9%. So really, really good performance during the quarter.

And a quick follow-up on what Pat mentioned. For U.S. RevPAR, understanding the first quarter was impacted by the hurricane comparison. What are your expectations for U.S. RevPAR in the second quarter and second half of the year? And are there any other calendar considerations that we should keep in mind?

Yes. We're encouraged by the strengthening trends we saw throughout the first quarter and really saw occupancy strengthen, and that positive momentum really continued into April. At the same time, we're still early in the year and being mindful of the broader macroeconomic environment. So while performance has been trending favorably relative to our expectations, we believe it is prudent to remain cautious and we've upholded our current guidance. But should the economy continue to perform well and these macro risks recede, we think we're well positioned to trend towards the higher end of our forecasted range. But for now, we believe a more measured approach is in our best interest.

And the next question comes from the line of Michael Bellisario with Baird.

First on the RevPAR underperformance I get that the hurricane impact in retrospect was greater than you thought, but maybe help us with the 2-year stack. I mean, I presume your hotels lost market share. So I guess maybe why do you think that was the case? And then when do you think that ultimately starts to recover for at least those affected hotels?

Yes, Michael, I think if you look at a couple of things. The first is the key point in all of this is occupancy. We talked about this on the last call. We saw a strength of that indicator all last year, and that grew again in the first quarter. So we are seeing demand come back into the hotels, and that's a really strong fundamental for the cycle to shift and move in the right direction and make it durable. Then on top of that, as owners get more comfortable with the demand environment, they raise price.

I think the other thing that's important to note is when you open 6,000 rooms in a quarter, the ramping of that as well has an impact on RevPAR. So as we said, we're very comfortable with the RevPAR projections that we have for the full year. And I think as you think about the openings and the sort of more occupancy driven, with rate and following, that's how we kind of look at how the first quarter shaped up when you take the hurricanes out. Just for a reminder, about 20% of our portfolio sits in those 4 states that were impacted by the hurricane. So it had a very significant effect on our Q1 numbers for last year. So as we look into April and beyond and that dissipates, I think it will be a much more easier comparison year-over-year.

Just to put a finer point on that. When you look at the various regions outside of that South Atlantic where those 4 states are, every region had positive RevPAR throughout the quarter, so up about 1.5% to 2% across all the quarters. So really was a regionalized hurricane impact to our results. And as we said in our prepared remarks, if you pull out the hurricane impact, actually, the entire system was up about 1.8% for the quarter.

Okay. That's helpful. And then just sort of real time, I mean, stock down 14%. I mean, market doesn't like surprises. That's what we got today. So I guess, how do you plan on handling communication, better telegraphing some of the moving pieces in the model on a go-forward basis? Any kind of color or commentary there would be helpful.

Yes. I think we're -- like we said, we're very happy with the improving underlying trends that we're seeing. We're seeing unit growth inflecting. We're seeing RevPAR improving, capital intensity declining. We've been -- these are all things we talked about on the February call. And while the financial results were in line with our expectations, really the underlying trajectory of the business is much stronger than the quarterly year-over-year comparison suggests. So I think when you look at it on that front, we're going to keep communicating the positive story that we have and the results that we're achieving.

And the next question comes from the line of Patrick Scholes with Truist Securities.

Question for you regarding market share. I know when in COVID coming out of COVID, you're pretty vocal and granular when you were receiving market share gains. I want to go back and look at the transcript from you had 400 basis points of year-over-year market share gain. Along that same line, what was your market share change year-over-year versus last year in the most recent quarter?

Yes. In terms of index, I mean, if you take out those hurricanes states that we mentioned, we were generally in line with the performance in the various local markets that we're in. So obviously, the heavy skew, as Pat mentioned, of our portfolio that is in those 4 states, about 20% of our product. That has skewed kind of our comparisons when you look at the overall STR numbers. But when you look at it on a localized basis, we're in line with the performance of the overall segments that we perform in those local markets.

Okay. But let's not take those out, what would it be for the whole portfolio?

Well, as we mentioned, the hurricane had about a 400 basis point impact. So if you look across the chain scales, obviously, that -- our performance and we outperformed, I think, our competitors in those markets, certainly pulled down the overall results. But as I said, outside of those numbers, we feel really good about the way our hotels are performing against our local comp.

Okay. So I can't get a number like you had given before. Is that correct?

Well, it really is by segment, Patrick. So creating a broader, I think, in the past, we have given some of the RPI gains against the various segments that we operate in economy, scale up or midscale. So we don't have those to provide today, but certainly happy to follow up with that.

Okay. It would be helpful. Just because when it goes up, we hear the good number and then we go down, we don't get a number. So I'll follow up later.

And the next question comes from the line of Robin Farley with UBS.

Two questions. One is just looking at what we see from not only the STR numbers, but some other companies raising RevPAR guidance for the remainder of the year. I understand the hurricane comps were an issue. It sounds like that would have dissipated by now in April. Is there anything else from a geographic perspective other than the hurricane issues in Q1, which sounds like we're not continuing. Is there anything else from a geographic perspective where why choice wouldn't participate in maybe this better outlook than how things looked at the start of the year? That's one question.

And then if I could also ask your -- the line for equity and loss of affiliates, some of those losses have been coming in bigger, I understand that Canada now you wholly own and so there was a shift there. Is there like development spend? Or what other things are making that line look like maybe a heavier loss than it had been historically.

Yes. Robin, I think it's important to also remember, Q1 is one of the lowest contributors from a travel perspective for our type of travelers. So that's also kind of playing into why we maintain our RevPAR guidance. As we said, we're seeing very positive trends, particularly in March and April. It's occupancy driven, which is critical from the standpoint of durability, and we feel really good about that. But it's one of the quarters that contributes least. As we get into Q2 and Q3, where we have much more of that summer drive travel this year, in particular, we've got the event-driven travel. I think you'll see that pick up and we'll be able to kind of give a clearer view into the rest of the year at that point.

And just put another point on that. In terms of April performance, we are now past the hurricane impact that dissipated probably about the middle of March last year. So our preliminary results in April are positive. Underlying trends that we saw in March outside of the hurricane states have had pulled through in April. So we are pleased with the underlying trends. And as we said, there are some more macro uncertainty that's out there. But absent that, we feel like we're more performing towards the higher end of our guidance on the RevPAR, assuming this continues.

In terms of your question around the equity gains and losses, those are really reflective of some of the development we're doing with the Everhome properties. So we had several properties open over the end of Q4 and the beginning of Q1. So really just the timing of ramping of hotels that's reflected through there. As we mentioned earlier, we are at the back end of the investments that we've done for Everhome and for Cambria now that both of them have met their strategic objectives. And so you'll see a meaningful step down in the capital intensity of our investments there. And as those hotels ramp up, those losses will turn to profits as they are fully ramped.

And the next question comes from the line of Stephen Grambling with Morgan Stanley.

Just maybe a follow-up there on the international front. Just as that started to ramp up and becomes a bigger part of the base, how do you think about the contribution from a profitability standpoint? Is there a certain number of rooms or certain pockets that you need to see get to a certain level before that can become more meaningful in terms of real EBITDA contribution?

Yes, Stephen, I think it's -- the significant change was the shift to more of a direct franchise model. Taking MFA markets, master franchise agreement markets and turning them into direct franchise markets where the contribution is significantly higher, the margins are higher, the royalty rates are higher. So it's really a story around looking at the markets where we feel like it's more opportunistic for us to be or strategic rather for us to be in that geography in a more direct franchise world as opposed to what we might have been doing prior to that. So the shift is really, I think, exciting because we've got today about 10% of the EBITDA being driven by the international business. And we're really starting to scale that up, particularly here in the Americas. And so we do see that becoming a much bigger contributor over time.

Yes. We're really pleased with the Canadian acquisition that we have executed last year and really saw strong results from that our Canadian operations during the quarter with RevPAR up a little over 5%. Our rooms growth there was about 3.5% and the pipeline is up 55%. So really I'm optimistic on the growth in that new market for us.

Maybe one other follow-up. It could be related, but from a free cash flow standpoint, at this point on a TTM basis, it looks like even including some disposition proceeds, you're at about $50 million. What are some of the kind of one-offs that we should be thinking about and how to think through kind of the trajectory of free cash flow. Is there still some spend that we've got to get through before we see that accelerate?

Yes. We do have some timing issues in the quarter, which had pulled down our operating cash flow slightly, and our key money was slightly higher from Q1 to 2025 to Q1 2020 (sic) [ 2026 ], but that was really driven by a 37% increase in the room openings compared to the prior year. And additionally, the mix of hotels opening really shifted with a strong growth in our more accretive segments that have really strong returns, which further contributed to a slightly higher key money disbursement.

What we really look at is this is really a timing. Our algorithm in terms of free cash flow remain intact for the remainder of the year as we kind of continue to move back towards that historical 60% to 65% free cash flow conversion. On the balance sheet investments, really strong quarter where net -- our outflows were down 50%, and we were actually net recyclers of capital during the quarter with about $4 million net back to choice where we spent about $40 million the year before. So we expect that to continue to meaningfully step down. We expect net outflows to be down about 70% year-over-year. And as the transaction market improves, we do see opportunities for us to accelerate the recycling of that capital by selling hotels encumbered with long-term franchise agreements.

The next question comes from the line of Brandt Montour with Barclays.

Great. So I wanted to circle back to AI. You guys mentioned it. in the prepared remarks. It seems like everybody in your space is sort of in a race right now to roll out apps and apps and other AI-based search technology to try and sort of enhance direct bookings within the top of the funnel and the customer journey overall. Can you just sort of give us the business state of the union in terms of where you are in terms of rolling out that tangible technology versus your peers?

Yes, it's a great question. And for us, technology has always been a structural advantage for us. We're the -- I believe, probably the only company that has both our infrastructure and our data all in the cloud. And those are 2 key ingredients to be able to bring AI to the enterprise at a scaled level. We see it as really driving our franchisee economics. We mentioned easy bit in the remarks. I mean that is a tool that is already providing meaningful results to our franchisees from a revenue -- top line revenue perspective, and it's cutting their costs. So the unit economics is really where we are placing a big bet for us. And I think there's industries and companies where they're throwing out thousands of agents and hoping 1,000 flowers will bloom. We've kind of taken a very direct and purposeful approach to how we're going to use AI to drive the unit economics of our hotels.

To your point about the customer journey, we are definitely, as we've talked in the past, leaning in with OpenAI and Google. We are working with some of the other large language models to make sure our hotels appear in the answer engines. And that's a lot of test and learn that's going on in the industry itself. But we've kind of taken a different approach, I think, by making early investments a number of years ago that have really allowed us to bring these AI tools to our franchisees at scale that are now driving real results for them. And the deployment is just incredible and the adoption rates we're seeing from our franchisees are enormous, much higher than sort of prior rollouts of tools.

And next week, we'll have all of our franchisees together in Las Vegas. A lot of that time will be spent having them roll up their sleeves and really engage with these new tools we're rolling out. We're pretty excited by the upside we're going to see with both the unit economics of our hotels and then things that we're going to be able to do here at corporate to really drive higher productivity and lower costs. So it's really kind of a hitting on 3 levels, that consumer what we're doing for franchisee economics and then what we're doing here to run our business more efficiently.

Okay. Great. And then just a follow-up on demand, back to one of your comments, the reason why you guys didn't raise guidance for RevPAR was because of -- and I don't want to put words in your mouth, you said sort of cautiousness around the macro and reason to be prudent. And I'm just trying to put those comments with the earlier comments that the U.S. -- that you see the U.S. inflecting. And so I guess, what is there in terms of macro tail risk within the domestic travel picture, if anything at all or if it's sort of kind of the unknown unknowns when you say macro.

Yes. I would put it. That's a great way to put it. It's more of the unknown unknowns. I mean I think we've been through a couple of years as an industry where nobody had certain things on their bingo card at the beginning of the year when they put their forecast together. We've seen the airline industry and travel in general be significantly impacted by government shutdowns and tariffs and all kinds of things that we're not in anybody's forecast.

So I think we look at our business, we're really 3 months in and now know we have some good visibility into April. But rather than kind of get ahead of our skis here. We feel good about the RevPAR range we have, which is fairly wide. But it's a -- just given our trajectory and the close-in booking window that we have, so the visibility from a RevPAR for us is slightly different than maybe some industry peers. So we wanted to be very prudent in taking a look at our RevPAR and thinking about that whether or not to raise it or not was a decision we -- a discussion we had, but ultimately decided the prudent decision was to keep it where it is.

And the next question comes from the line of Trey Bowers with Wells Fargo.

Just following up a little bit on the cash flow dynamics. The key money outlay in the quarter due to the really solid gross additions. Is that still kind of going to expect to be in that kind of $100 million, $110 million range this year? Or is the fact that you guys are doing better than expected on gross additions, just going to raise that number?

And then longer term, as we look forward, should we think about kind of a tie ratio of gross room or hotel adds to key money that the more success you have that key money will kind of grow with that? Or are there dynamics there that might come down even with a better NUG environment?

Yes. To answer your first question, no change to our overall outlook for key money spending for the year. Really, this was timing-related compared to the prior year with the really strong openings, which were in line with our forecast at the beginning of the year as we have been talking about really the inflection in U.S. rooms growth. So nothing to change there. In terms of an algorithm, really every key money deal is underwritten on a deal-by-deal basis, and it really depends on the strength of the deal, where we're putting the brands on in the overall environment. So there isn't a one-to-one relationship in terms of number of openings and key money for future. So I believe as the new construction environment starts to rebound, the RevPAR environment gets -- starts to improve over the next couple of years. I actually think you'll see key money per deal step down more meaningfully as that money isn't needed to help defray the cost of building a hotel or switching hotels. So something we monitor closely. We're very pleased with the overall returns we get when we do use key money, but it's really a market condition dynamic of how much will be used based on how many openings we have.

[Operator Instructions] The next question comes from the line of Meredith Jensen with HSBC.

Just a quick follow-up on what Brandt asked around AI. As I think your particular take is unique given your background in technology. And I would be really interested if you might speak or unpack a little bit more on your comments about being -- having a more narrow or strategic focus than some of the discussions we're hearing. And is that given you might have a view on how much the economics of AI might end up being over time? Or that the scalability is less knowable now and you've seen that before? Just some more comments on that would be great.

Yes. Meredith, it's an interesting sort of pivot point that I think companies have to make. At Choice, our history has always been to invest in technology that we can scale to our 7,500 hotels. And what we are really seeing with AI is the ability to do that in a much more accelerated fashion. When you look at what we're doing, we've put out press releases about kind of really deepening our partnership with AWS. The reason for that is to deploy these things at scale, you have to build the scaffolding in order to do it. and relying on a partner who we've already got our infrastructure in the cloud with who works with us kind of behind the scenes on sort of more experimentation and an improvement in the software development life cycle. We do develop proprietary tools. We just see an opportunity here to really drive higher productivity out of our current workforce in a way that's going to bring some pretty, I think, significant change to our franchisees' operating models. And that's why we really have been talking about the franchisee economics, that kind of 4-wall EBITDA for our hotels is probably going to increase in a significant way because of AI. We think about these tools in the past, as it would tell you what happened last week or last night in your hotel, they're moving to a place where their teammates to tell you what's your next best action. How many people do I have checking in, how many Choice Privileges members are coming in next week plan for that. These types of things are speeding up, and we're really seeing these tools deliver meaningful value to our franchisees.

And so that's why we've sort of taken the approach of focusing our efforts. The other thing people don't talk about is AI isn't free. Tokens cost money. And so as you think about the cost of your approach to deploying AI you have to be measured in that as well. So that's kind of the way we've approached it. As I said, we just shared 1 example in the script of something that's already deployed. But that was built and deployed in a very rapid fashion and the adoption rate by franchisees is significant. So that's the type of thing that we think we're going to see is just an acceleration of these tools being deployed in a place where our franchisees who, as you know, are small business owners, these things bring meaningful value to them and drive their returns higher.

That's really helpful color. And maybe one since you touched upon it on the loyalty program. I know you had a pretty big refresh that launched earlier in the year. And maybe if you could just speak a little bit more about the momentum you're seeing in engagement, changes in redemptions rates given you gave people, I think, extra flexibility and sort of what we're seeing in terms of new opportunities that, that new card program might unlock?

Yes. So kind of tapping into the theme of affordability, which our franchisees or our guests rather are telling us they want. We really looked at it and did -- we're kind of pursuing a counter strategy here to make the points more valuable, not less. And so what we call Rewards Within Reach. So you get something after 5 nights as opposed to 10 nights. So bringing that in. And that meets where our customer where they are and the amount of travel that they do. As we said in the script, we've seen a 300 basis point increase in loyalty contribution in the first quarter. We're seeing more members, and we're seeing more revenue per member.

So we're really excited about the refresh that we've done and the upside it can bring to bring that sort of loyalty program or a member who's a repeat stayer. We know they stay more often and we know they spend more when they travel. So it's the right type of demographic for us to continue to grow and to keep that part of our revenue engine refresh and move it in the right direction.

And we have no further questions at this time. I would like to turn it back to Pat Pacious for closing remarks.

Well, thank you, operator, and thanks, everyone, for joining us this morning. We look forward to speaking to you again in August when we report our second quarter results. Have a great rest of your day.

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to Choice Hotels International Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions]. I will now turn the call over to Allie Summers, Senior Director of Investor Relations.

Good morning, and thank you for joining us. Before we begin, please note that today's discussion includes forward-looking statements as defined under U.S. securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied.

For more information, please refer to our filings with the SEC, including our most recent forms 10-K and 10-Q. These statements speak only as of today, and we undertake no obligation to update them. A reconciliation of any non-GAAP financial measures referenced in today's remarks is included in our earnings press release available on the Investor Relations section of the choicehotels.com.

Joining me this morning are Pat Pacious, our President and Chief Executive Officer; and Scott Oaksmith, our Chief Financial Officer. Pat will discuss our business performance and strategic progress, and Scott will review our financial results and outlook.

And with that, I will turn the call over to Pat.

Thank you, Allie, and good morning, everyone. We appreciate you joining us today. In 2025, we delivered adjusted EBITDA of $626 million up 4% year-over-year and grew adjusted earnings per share, both in line with our expectations. These results reflect the continued strength of our higher revenue brand mix, accelerating earnings contribution from our international portfolio, robust group demand, business travel growth and sustained momentum across our partnership revenue streams.

2025 was also a year of meaningful progress in advancing our long-term growth strategy. We delivered 14% year-over-year growth in global hotel openings, expanded our international footprint at a double-digit pace and further strengthened our leadership position in the attractive extended stay segment, achieving record U.S. openings.

When we look at our existing hotels, the success of our overall strategy to improve product quality and strengthen franchisee economics can best be seen in the higher average royalty rate we were able to achieve across the U.S. portfolio, which increased 8 basis points in 2025 and 10 basis points in the fourth quarter.

On the consumer front, we are particularly excited by the recent launch of the next evolution of our Choice Privileges loyalty platform and the launch next quarter of a dedicated digital platform for small and midsized businesses. Our hotel development pipeline remains a powerful engine for future earnings growth, supported by strong developer interest with global franchise agreements awarded up 22% year-over-year in 2025.

Today, 97% of rooms in our global pipeline are in higher revenue brands, and these projects are expected to be roughly 1.7x more accretive than our current portfolio, driven by RevPAR premiums, higher average royalty rates and larger average room counts. Importantly, our advantage is not only pipeline quality but execution speed.

Our conversion-led model accelerates openings and revenue realization with certain hotels opening without ever appearing in quarter end pipeline metrics. That execution strength is especially evident in the U.S., where pipeline conversion rooms increased 12% sequentially from September 30, 2025. Our conversion engine remains a key differentiator for choice, enabling those hotels to open about 5x faster than new construction hotels.

In the fourth quarter, U.S. conversion franchise agreements increased 12% year-over-year, and we expect conversion activity to be a core driver of improving U.S. net room growth in 2026. As we indicated on our last call, we have been actively optimizing our U.S. portfolio throughout the year with developer demand remaining constructive including full year U.S. mid-scale and economy franchise agreements up 5% year-over-year.

We accelerated the select exit of underperforming hotels in the fourth quarter. These properties generated royalties well below our portfolio average and ranked predominantly in the bottom quartile of guest satisfaction within their brands. This improving portfolio mix strengthens the system's earnings profile and positions us to backfill those markets with higher quality hotels that deliver stronger unit economics for owners and more durable long-term growth for shareholders. With a larger hotel conversion pipeline and a higher volume of conversions expected to open in 2026 and based on current year-to-date trends, we believe U.S. net rooms growth is positioned to return to positive territory this year. Looking ahead, we're increasingly constructive on U.S. lodging demand in our segments.

Our core customer continues to prioritize travel within their overall spending with a clear focus on affordability. Choice has long been strategically positioned at the center of value-driven travel. And in the current environment, that consumer recognition supports our ability to capture incremental share within the segment. As gas prices have declined to their lowest level in 5 years, bringing them back within pre-pandemic ranges, road trips are becoming more budget friendly for our consumers.

In addition, tax relief expected to reach middle-income households this year has historically provided significant stimulus for travel within our segments. Importantly, the timing of the relief aligns with the start of the summer travel season the most meaningful period for our owners.

Furthermore, upcoming national events, including the 2026 FIFA World Cup, the U.S. 250th anniversary, and the Route 66 Centennial provide additional demand catalysts. More broadly, we are benefiting from a limited new supply industry backdrop and steady workforce based travel demand tied to infrastructure, manufacturing and data center investments alongside favorable long-term demographic trends. With expected continued demand growth in several of our strong consumer segments, including retirees, Roadtrippers and America's blue and gray collar workforce, combined with an improved portfolio of purpose-built hotels to serve them, we believe Choice is well positioned to capture this demand and deliver durable long-term growth.

Turning to our business outside the U.S. We've used specific international markets as an increasingly important driver of our growth. And in 2025, our international business delivered exceptional results. Over the past several years, we've deliberately built the foundation for scalable, high-return international growth.

Today, directly franchised rooms represent more than 40% of our international portfolio. That number is up over 20 percentage points over the past 3 years, materially enhancing earnings per unit and overall economics. With that foundation in place, momentum accelerated in 2025. We delivered 37% growth in international revenues, driven by portfolio expansion and positive RevPAR growth across every region. We expanded our international system by 13% year-over-year to approximately 160,000 rooms, outpacing our prior growth assumptions, supported by an 82% increase in hotel openings.

In the Americas outside the U.S., RevPAR increased 5.4% year-over-year in 2025. Within that region, Canada remains a key focus with the rooms pipeline growing 49% year-over-year. As we continue to enhance the Choice value proposition in Canada under our direct franchising model. We see a meaningful opportunity to drive both system growth and stronger franchise economics over time.

In EMEA, rooms increased 13% year-over-year to approximately 70,000 and including nearly doubling our footprint in France through direct franchising. Taken together, our international business is entering its next phase with greater scale, stronger unit economics and a meaningful runway for sustained growth.

Another important growth engine for us is the U.S. Extended Stay segment. In the fourth quarter, we delivered our tenth consecutive quarter of double-digit system growth. Today, the extended stay segment represents more than 40% of our U.S. pipeline and is characterized by longer average days higher margins for owners and greater earnings stability across cycles.

In 2025, we achieved a record number of U.S. extended stay hotel openings up 8% year-over-year, driven by our Everhome Suites brand. Despite a challenging construction environment, we ended the year with approximately 57,000 extended stay rooms in the United States. With continued investment in manufacturing capacity and data center infrastructure nationwide and the largest under-construction hotel pipeline in the economy and mid-scale extended stay segments we believe Choice is well positioned to extend its leadership in this structurally resilient category.

Our portfolio strategy is also strengthening our economy brands. Our guest satisfaction scores improved significantly across the segment. And as quality improvements take hold, we are replacing lower-performing assets with higher quality, more profitable hotels enhancing brand equity across the category. As a result, our economy transient hotels outperformed their chain scales in RevPAR and gain RevPAR index share versus competitors in 2025. That performance reinforced developer confidence with our U.S. economy transient rooms pipeline expanding 6% quarter-over-quarter and U.S. franchise agreements awarded up 13% year-over-year in 2025. These trends are expected to drive improvement in the segment's net room growth trajectory.

In our mid-scale segment, developer interest remains strong with global franchise agreements awarded up 14% year-over-year in 2025. The redesigned Country Inn & Suites by Radisson prototype optimized for cost efficiency and conversion flexibility has reinvigorated the brand, driving a 50% increase in U.S. franchise agreements in 2025 and expanding the U.S. pipeline by 18% year-over-year. With that momentum and a compelling owner value proposition, we believe the brand is well positioned for growth in 2026.

Let me now turn to the efforts we are focused on that are strengthening franchisee economics and driving higher customer lifetime value. Among our targeted investments, 2 key areas are business travel and guest loyalty. In business travel, we've expanded our global sales capabilities and deepened relationships with corporate accounts. Business travelers now represent roughly 40% of total stays, supporting a balanced mix across cycles.

In 2025, group revenue increased 35% year-over-year and small and midsized business revenue grew 13%, led by resilient sectors such as construction, utilities and high-tech manufacturing. Our AI-enabled RFP tools are accelerating hotel responsiveness and driving high-value bookings. And next quarter, we expect to launch a dedicated digital platform for small and midsized businesses, targeting an estimated $13 billion addressable opportunity.

We also continue to elevate the lifetime value of the guests we serve. Today, half of our U.S. guests have household incomes above $100,000 and 1 in 5 exceeds $200,000, an increasingly attractive customer base for our franchisees and partners. Loyalty remains a powerful driver of customer lifetime value. Choice Privileges now exceeds 74 million members, up 7% year-over-year with international enrollment up 11% in 2025, our strongest year internationally. Our most loyal members stay nearly twice as often, spend more per say, and are significantly more likely to book direct.

In January 2026, we launched the next evolution of Choice Privileges, broadening how members earn and engage. We introduced a faster path to status by reducing night thresholds and added a spend-based pathway that allows co-brand card usage to contribute toward elite qualification. We also introduced a new top-tier status and added return and earned bonuses to encourage additional stays within the same year, reflecting research that shows our travelers value more frequent, and attainable recognition. Together, these enhancements are designed to increase repeat frequency and deepen co-brand card engagement, enabling Choice to capture a greater share of demand within our core customer base.

Early indicators are encouraging with post-launch enrollment trending at a faster rate than last year. We are also actively expanding how travelers discover and book our hotels by partnering with leading technology platforms as AI reshapes travel search and booking behavior. We are collaborating with companies, including Google, on its AI-powered travel planning capabilities and open AI through participation in its ChatGPT advertising pilot, among others.

Early engagement in these emerging channels strengthens our distribution and positions us to capture incremental demand and remain highly visible as consumer search behavior continues to evolve. As we look ahead, Choice is well positioned for continued growth. Our disciplined execution, technology forward strategy, an asset-light fee-based model continued to generate substantial free cash flow enabling us to reinvest in high-return initiatives while delivering value to shareholders.

With a higher quality portfolio, a more accretive development pipeline, expanding international business and targeted investments that strengthen franchisee economics and guest lifetime value, we believe choice is positioned to grow market share and deliver durable earnings expansion.

With that, I'll turn the call over to our CFO. Scott?

Thanks, Pat, and good morning, everyone. I will cover 3 areas this morning. Our fourth quarter and full year 2025 financial results, our balance sheet and capital allocation priorities and our outlook for full year 2026. For full year 2025, we delivered adjusted EBITDA of $626 million, up 4% year-over-year and in line with the midpoint of our guidance range. Adjusted earnings per share for the full year were $6.94 per share, also in line with the midpoint of our guidance range.

Growth was driven by our continued leadership in the higher revenue extended stay segment robust average royalty rate, significant expansion of our international business and strong partnership revenue performance. These results reflect the strength of our diversified revenue streams and the early returns from our targeted strategic investments.

In fourth quarter 2025, revenues, excluding reimbursable revenue from franchised and managed properties increased 2% year-over-year to $234 million, adjusted EBITDA was $141 million and adjusted earnings per share rose 3% year-over-year to $1.60.

Let's turn to the 3 key drivers of our royalty fees, rooms growth, RevPAR performance and average royalty rate. In the fourth quarter, we grew our global rooms 0.5% year-over-year, led by a 1.2% growth in our higher revenue segments and highlighted by a 42% increase in hotel openings. In the U.S. we opened more than 22,000 gross rooms during the year, and our conversion pipeline increased 7% year-over-year as of December 31. This healthy level of openings and development activity provided us flexibility to accelerate select hotel exits.

From an economic standpoint, the trade-off is clear. In 2025, hotels that exited the system generated U.S. RevPAR more than 20% below the company average. Improving portfolio mix enhances long-term earnings quality and positions U.S. net rooms growth to return to positive territory in 2026. We also saw continued strength in franchisee retention with U.S. contract renewal activity in 2025 matching prior all-time highs, reflecting sustained confidence in the Choice brands.

Across our focus segments in the fourth quarter, developer interest for our extended stay brands remain robust, with 26% growth in global extended-stay franchise agreements year-over-year. As of today, we have 27 Everhome Suites hotels opened in the U.S., including 18 opened during 2025, and with 38 additional projects in the U.S. pipeline.

In mid-scale, we increased global hotel openings by 47%. We also executed 18% more global mid-scale franchise agreements year-over-year, driven by our quality in Country Inn & Suites by Radisson and Sleep brands. In the upscale segment, we expanded our global roots portfolio by 7% year-over-year, highlighted by 48% more global upscale hotel openings. Our send collection hotel openings increased 58% year-over-year, and the brand now exceeds 75,000 rooms worldwide. In the U.S., we more than doubled Radisson franchise agreements year-over-year and grew rooms pipeline by 32% quarter-over-quarter.

I also want to recognize our teams for completing the integration of our Canadian operations in just 6 months. We transitioned the business to a direct franchising model enabling franchisees to fully leverage Choice's commercial platform while enhancing our effective franchise agreement economics over time. We are already seeing early momentum on the development front, including a recent multi-unit agreement for approximately 700 upscale Ascend collection rooms in Quebec.

Turning to RevPAR performance. Our global RevPAR declined 4.6% year-over-year in the fourth quarter on a currency-neutral basis. As discussed on the prior call, this was driven by the tougher hurricane comparison in the U.S. Southeast from the prior year. International performance remained strong with RevPAR up 3.2% year-over-year on a currency neutral basis. The Asia Pacific region led with 11% growth.

In the U.S., we lapped a 540 basis point hurricane-related benefit from the prior year. Excluding that impact, U.S. RevPAR declined 2.2% year-over-year representing a modest sequential improvement from the prior 2 quarters. Our fourth quarter results were also affected by the government shutdown and continued softness in international inbound travel.

Despite these pressures, we achieved occupancy share index gains versus our competitors on a full year basis, excluding hurricane-related distortions, our U.S. extended space segment outperformed the industry RevPAR by 30 basis points. And our U.S. transient economy segment outperformed its change-scale RevPAR by 80 basis points, while gaining RevPAR index share versus competitors in 2025.

Moving to royalty rate. Our third driver of royalty fee growth. In 2025, we exceeded our full year U.S. average royalty rate guidance, finishing the year up 8 basis points, including a 10 basis point increase year-over-year in fourth quarter. This expansion reflects our success in growing higher revenue brands and the continued improvement in our franchisee value proposition. We remain confident in the upward trajectory of system-wide royalty rates, supported by sustained demand generation investments and development pipeline characterized by higher contracted royalty rates and stronger unit economics.

Turning to our partnership business, which remains a key priority. In 2025, we delivered a 14% year-over-year growth in partnership revenues, including 16% growth in the fourth quarter. Performance was driven primarily by co-brand fees and increased supplier and strategic partnership fees.

As we enhance our franchisee-facing service offerings, adoption remains strong supporting durable growth in our non-RevPAR franchise fees across the broad range of services we provide. Together, these revenue streams have meaningfully diversify our earnings base and represent an attractive high-margin growth opportunity going forward. At the same time, we remain focused on margins through improved productivity and operational efficiency. Adjusted SG&A increased approximately 3% for the full year, in line with our guidance to $283 million, reflecting cost discipline while continuing to invest in strategic initiatives.

Now turning to the balance sheet and capital allocation. We ended the year with total liquidity of $571 million and net debt to trailing 12-month EBITDA of 3x, and we are comfortably within our targeted gross leverage range of 3 to 4x. For full year 2025, we generated more than $270 million of operating cash flow, including nearly $86 million in the fourth quarter. This cash generation, combined with our strong balance sheet, provides meaningful financial flexibility.

Our capital allocation framework remains consistent and disciplined. We prioritize high-return organic investments that strengthen our brands and drive long-term growth. evaluate selective acquisitions where returns are compelling and return excess capital to shareholders. Our dividend reflects a stable recurring commitment, while share repurchases are executed with a disciplined focus, balancing shareholder returns with reinvestment opportunities that meet our return thresholds.

In 2025, we returned $189 million to shareholders, including $54 million in dividends and $136 million in share repurchases. During the year, we repurchased approximately 1 million shares representing more than 2% of our shares outstanding and ended the year with approximately 2.8 million shares remaining under our authorization or about 6% of shares outstanding.

We also continue to deploy capital selectively to scale Cambria Hotels and Everhome Suites while recycling capital at the appropriate time. In 2025, we generated $32 million in net proceeds from recycling activities and our hotel development related net outlays and lending declined $46 million year-over-year to $103 million.

Looking ahead, as both brands approach critical scale milestones, we expect hotel development net capital outlays to continue to decline significantly. This reflects the delivery of our final company developed Cambria hotel in the third quarter of 2026, and our planned tapering of new Everhome Suites hotel development investments.

In 2026, we expect continued recycling of existing hotel capital, resulting in net hotel development outlays of $20 million to $45 million, 70% lower at the midpoint than 2025 levels. Over the next several years, as hotel transaction activity improves, we expect additional recycling opportunities to emerge.

Before we open it up for questions, I'd like to walk through our expectations for 2026. For full year 2026, we expect adjusted EBITDA in the range of $632 million and $647 million. reflecting organic growth across higher revenue hotels and markets, strong royalty rate growth, sustained international momentum and further contribution from partnership and non-RevPAR revenues. We expect our adjusted diluted earnings per share for full year 2026 to be in the range of $6.92 to $7.14 per share.

Our outlook is based on the following key assumptions: Net global rooms growth of approximately 1% year-over-year, reflecting our expectation for U.S. net rooms growth to return to positive territory alongside continued international expansion. Consistent with the normal timing of same year conversion openings U.S. net rooms growth is expected to be more heavily weighted towards the latter part of the year.

Global RevPAR in the range of negative 2% to positive 1% year-over-year in constant currency, with U.S. RevPAR between negative 2% and positive 1%. average royalty rate growth in the mid-single digits year-over-year and adjusted SG&A increasing in the mid-single digits. Our outlook excludes the impact of any additional M&A, share repurchases completed after December 31, or other capital markets activity. We remain focused on investing in high-return initiatives that enhance our long-term growth trajectory, improve returns for our franchisees and drive meaningful shareholder value.

With that, Pat and I are happy to take your questions. Operator?

[Operator Instructions]. Your first question comes from Michael Bellisario from Baird.

First question just for Scott, just one more on the spending outlook. Maybe could you just walk us through expectations for key money spending, [ CapEx ] and also JV investments in 2026 as well.

Sure, Michael. Thanks for the question. So in terms of key money, as you saw in our release, we did spend less money in 2025 than we did in 2024. We were about net $83 million compared to $112 million in the prior year. So we were pleased to see that our average key money check size for our domestic system was down year-over-year as well as the number of deals that needed key money to be signed.

For 2026, we do think we'll see an acceleration of openings. So we do expect key money to increase off that base at $83 million did include some recovery. So our net -- our gross outlays for key money were about $92 million. We would expect for 2026 for that number to be somewhere between $105 million and $110 million for 2026 in terms of key money.

In the recyclable capital, we had really, really good success of continuing to pull down that use of capital there. capital for 2025 was about $103 million net, 30% lower than it was in the prior year. And as I said in the prepared remarks, we are tapering down the use of that recyclable capital. So we expect that to drop another 70%. So we are guiding to a net use of capital of about $20 million to $45 million next year. So that will be a decline from the $103 million we spent this year.

So as we've been talking to the Street for the last couple of several years been that -- capital is really around launching the growth of Cambria and the Everhome Suites brand. We've been very pleased with how those brands have grown with Cambria now over 75 hotels in Everhome really with a strong start. We feel we're in the place now if we can start tapering that capital. And as we taper the outlays, we also expect to see recycling improve here over the next couple of years as the transaction market improves and the overall U.S. hospitality industry.

Mike, I would just add that the strategy underlying it all is that the value proposition for our franchisees has gotten better, the amount of key money per deal to attract new entrants is declining. And as Scott said, obviously, as more hotels open and that key money actually gets used, that's a positive sign. And then just back on the capital for both Cambria and Everhome, the final chapter in all of this is to recycle it back to either higher investment initiatives, we'll return it to shareholders. So we're really entering that phase with Cambria and we'll be doing that this year with Everhome.

Got it. That's helpful. And then one related question just sort of on the buyback front there. Just where does the balance sheet need to get to in order for you guys to be more aggressive or more programmatic with buybacks going forward? That's all for me.

I think when you look -- yes. When you look at last year, we took kind of a pause after we bought the other half of the Canadian JV. I mean that was basically about $100 million worth of money going out to acquire that business. It's a market we've been in for 70 years, 30 years of that in the joint venture. And we've seen really fantastic early results on that, as Scott mentioned, we got the integration of that done at the end of 2025. So we took a strategic pause during the summer months and then resumed it in Q4. I think when we look at it, we are always doing our normal investment prioritization and looking at ways to invest back in the business, looking at M&A as an opportunity. And then as those things provided additional capital. We look for share returns and dividends. So that's kind of the way we look at it. You've seen our net debt-to-EBITDA ratios, which are in the range where we feel very comfortable. So that's how we will be thinking about it as we move forward in 2026.

Your next question comes from Lizzie Dove from Goldman Sachs.

I wanted to ask about your commentary around U.S. rooms growth returning to positive this year, just given that would be quite an improvement from where it was at least organically in 2025. Any more color on that or specific brands that you think will drive that?

Yes, it's a great question. As we mentioned in the remarks, we saw an increase in our both mid-scale and economy franchises awarded. They were both up 5%. And That, coupled with our conversion pipeline increasing by 12% in the fourth quarter. And then as we mentioned, we're seeing improvement in guest scores as well. So the brand quality is getting better. That gave us the confidence in the fourth quarter to take some very targeted, deliberate and ultimately value-accretive exits, which was really the story towards the end of 2025.

We look at 2026 there's a lot of constructive things that we see, both in our pipeline today with regard to the brands, as you mentioned, the ones that we're really seeing a lot of uptick from a conversion perspective, our Quality, Clarion, Clarion Point, Collage Roadway and Ascend, those brands from a conversion perspective really performed well for us.

We're also seeing, as I mentioned in the remarks, Country Inn & Suites by Radisson, the redesigned prototype there is driving a lot more both new construction and conversion interest for that brand as well. So those are the drivers we expect to be from a brand perspective that will help us get back to that sort of positive territory we mentioned.

Some. That's clear. And then just on the RevPAR side of things in terms of what you're forecasting for domestic RevPAR outlook, you called out a couple of tailwinds or potential tailwinds from World Cup and stimulus, et cetera. Just curious how much of that is kind of baked into what you're expecting for U.S. RevPAR growth this year or whether that's more kind of incremental upside if those come through?

Yes, I would say some of these -- if you look at the impacts that hit us last year, they were all transitory, whether it was the government shutdown the lapping hurricane impact we had in Q4, which is continuing here into of continued into Q1 of 2025. So we have that comp in the first quarter of '26. And then weaker inbound travel from international markets. When I look at the potential for the upside here, it's really some things that are a little bit harder to measure.

If we look at the tax relief, the early returns are looking great. So far, the tax refunds that U.S. citizens are getting are up 11%. And the overall tax relief that's come back so far this year on a year-over-year basis is up 18%. So we do know that the consumer has that stimulative backdrop for the first half of the year here, which we think will be a real positive for us.

When you look at international inbound, the dollar is the weakest it's been in 4 years. So international inbound travel, the U.S. is on sale from that perspective. And that also makes travel outside of the U.S. more expensive. So we would expect U.S. travelers to stay at home. So those things aren't necessarily baked in because they're a little bit harder to put into our guidance.

But when we look at sort of where we are in the midpoint of that range we gave that's sort of the backdrop for how we thought about some of the demand catalysts. But as I said, last year's weakness was primarily transitory. It was not structural, and we're very constructive on what we see from a RevPAR perspective in 2026.

Your next question comes from Dan Politzer from JPMorgan.

I wanted to go back to the RevPAR expectations for 2026. It does sound like there's some hope stimulus in there and certainly it's scaling upper midscale seem to be promising. But I guess kind of as you think about the RevPAR cadence for the year, how should we think about it progressing as it relates to that guidance that you've laid out?

So one thing I think to look at, and we mentioned this on prior calls, and we saw it in 2025 is the fact that our occupancy index for the entire year was positive. So when we've looked at cycles in the past, the first thing to recover is occupancy then followed by rate. So from the standpoint of going into the year, that is a really positive green shoot.

The second thing we mentioned this on the last call, and again, we saw it in Q4 is the performance of the economy segment. Is that segment improves and mid-scale improves and you get sort of an upward trajectory there. Again, we saw that from a RevPAR perspective, and from a RevPAR index perspective, we saw better performance in Q4 for our economy brands.

And then I would just say, as you look at the first 6 weeks of the year here, if we look at the markets outside of the U.S. we're already seeing a 1.7% increase in RevPAR year-to-date. So that's without the hurricane impact in it. And then as we look at what's in that 1.7 million, again, it's driven by a 2.3% occupancy gain. So we are seeing that strength in our hotels able to sort of fill the rooms, and that usually then leads to the impact for the ability for them to begin to move ADR in the right direction.

I think as the year lays out, traditionally, our Q2 and then our Q3, our Q3 is usually our highest demand RevPAR. And as I said in the remarks, that aligns nicely with the tax relief, it aligns nicely with the gas prices for road trippers as well. So we would expect that RevPAR increase to sort of improve as we move into the year in addition to the lapping of the hurricane impact that we're going to see here in Q1.

Dan, just to add a little bit more color. We do expect Q1 RevPAR will still be negative given those hurricane impacts that we had really is about 340 basis points to our results in the first quarter of last year. So we'll be lapping that, but we expect an inflection point in Q2 as we lap those hurricane those comps that Pat mentioned. So you'll see kind of more of a negative RevPAR in Q1 with an improving as the year goes on to reach our overall guidance. But as Pat mentioned, we're very optimistic given what we've seen on the non-hurricane states, given that that's positive RevPAR for those through the first months of the year.

Got it. And then just for my follow-up, I think the footprint, you've talked about in the past, removing some of the lower-performing properties off the platform. Maybe we're not complying with the guidelines or just underperforming in general. Have you basically cycled through that element of our -- of kind of culling the footprint? Or is there more to go there just as we think about that pathway to achieving U.S. domestic rooms growth in 2026?

Yes. It's something we do naturally. So it's always there as potential owners aren't performing or an asset becomes -- the owner wants to move that to a different -- either go independent or make it a different product altogether. So that's a natural, but we did accelerate some of that or I would say, took some targeted ones in the fourth quarter. That was more of a onetime on really looking at where we can clean out markets where we know there's opportunity to backfill that with a higher quality, better performing hotel. That impacts our average royalty rate, it impacts our guest satisfaction scores when we're able to upgrade the portfolio.

And it's something that the company has been doing for years. But in the fourth quarter, we saw some real positive signs from growth perspective on the pipeline and also on new deals, which gave us more confidence in the ability to sort of take out some of the lower performance. So I would say it was more of a an outsized number in the fourth quarter, but our normal sort of 3% to 4% churn rate is kind of where we would likely get back to.

Is there any way to just give the fourth quarter number for that? For the additional?

The overall -- just for the amount that we're kind of taking out as part of this initiative, so we can kind of better get an idea of the organic. It was about 20 hotels. When you look at that, it's about 30 to 40 basis points of net unit growth.

Your next question comes from David Katz from Jefferies.

Good morning, everybody. Thanks for the question. Pat, I think you may have just touched on this a bit, but I wanted to get a sense for often when there is kind of a period of removals it lasts for a period of time. How long do you expect this sort of offsetting removal process to take before we sort of settle into what presumably, NUG would go up, right, once that process is a bit more completed, right?

Yes, well, that's why we feel we're going to get back to a positive note this year in the U.S., we'll be positive overall. But in that U.S. note number, we really are looking at what's in our pipeline today. the franchise agreements we sold last year, which were, as I said, in these primary areas where we're taking these additional exits, they're up 5%.

So we've seen that, and they're in the conversion as part of the pipeline which was up 12% in the quarter. So that gave us the opportunity to say we know we have opportunity and interest for these markets for these brands. And so exiting these underperformers and the ability to backfill them is the strategy. When you look at our conversion hotels, they open anywhere between 3 and 7 months. So again, there's a lot of that will be sold this year that's not yet in the pipeline that will open this year. So that's a historical fact about the type of as I mentioned, the speed of execution within our pipeline. And so that's the way we think about it, David. I would say what we did in Q4 was elevated more so than what we would normally do.

I think, David, take the other thing -- we've been in a few years of no new construction across the U.S. industry. So the normal process as Pat is talking about that we always want to make sure that we're making sure our portfolio is performing well. It's a little bit more enhanced in terms of termination, just because you don't see the new construction coming in. Typically, we have about 1/3 of our openings are from new construction. In the last couple of years, it's been more in the 15% to 20%, just given the tougher U.S. development environment. So the calling of our system or exits here to make sure we keep brand quality up is just a little bit more pronounced. But we expect our termination rates as we go forward in 2026 and 2027 to trend back to historical normals.

Understood. And when we think about a much longer-term view, Pat, how do you see sort of the company getting to a normal NUG. I mean, do you is it reasonable to aspire to where the NUG levels are for some of the top industry companies are? Or is something more moderate like what you think is an appropriate sort of ongoing normalized net level for Choice?

Yes. David, I mean, when I look across the industry, NUG is coming from international. I mean that's look at everybody's NUG, it's international. And if you look at ours as well, 2025 was kind of the next phase of our growth on that in effectively the rest of the world. So we're really excited about that becoming a bigger contributor.

I mean -- and then I think the second piece is the return of new construction. That's the other aspect of this. When I look at our business and I look at the extended stay opportunity that we have here in the U.S., I mean that's continuing to outperform the competition. We added 12% more rooms we outperformed on RevPAR. So it's really a function, when I look across the industry, most of the NUG is coming outside of the U.S., and that's an area that we are growing in as well.\

Your next question comes from Robin Farley from Unit Bank Switzerland.

Great. I'm able to ask about your RevPAR guidance, just that the global is at the same rate as U.S., but your international RevPAR has been growing above the U.S. rate. I think we see that broadly. So just wondering why you're not seeing something at -- or expecting something at a higher rate in your international markets?

Well, I think the first part of it, Robin, is the size of the international market relative to -- so as we saw last year, we had very strong international RevPAR growth. But relative to the U.S., it was offset. So that's one factor in it.

I think the second is -- many of the -- a lot of the growth we had this year are going to be ramping hotels next year. So we are factoring that into our RevPAR thinking in the 47 countries that we're in and outside of the U.S. So it's a bit of a story about -- it's a small contributor today, and there's obviously a lot of variability in the 47 markets that we have hotels in.

Yes. And Robin, as Pat mentioned, it's really when you look at a same-store sales basis, we do see strong growth, particularly in Canada. We think we'll be more about 5.5% growth for the year. Our CALA region should be around 8.5%. But as Pat mentioned, just given we do report on a full system availability with some of the ramping hotels, just brought those numbers down a little bit, but we do think the general economic environment in the international markets will be stronger than the U.S.

Great. And just as a follow-up, still thinking about your international growth. I don't think -- I saw that the U.S. royalty rate you mentioned in the 5% range. I don't know if you gave that specific number for international royalty rate. I know you indicated it was up. But just wanted to get a sense of that, just given how much more direct you're doing versus master franchise, it seems like that would have stepped up a lot. And then I don't know if there's anything about key money with international growth that's different that you would call out than what we typically see from U.S. domestic growth.

I'll answer the key mining question, Robin. So as we have looked at our international business, as you mentioned, it has become more of a direct franchising model than we have been in the past. And what's really exciting is the power of the brands that we have internationally means we don't have to do key money the way we do here in the U.S. from that perspective to get the types of opening. So it's a much lower amount of money that's required to incent new growth. And then I think, Scott, do you want to answer that.

Yes, in terms of the royalty rate, we have -- the contracts we have been doing, we have seen some improvement in the royalty rate. Our royalty rate in our direct markets is about around 2.7% across the international markets. When we do go to market in an MFA agreement, a master franchise agreement, obviously, those are lower royalty rates given that -- our partners are responsible for servicing the brands in the local markets. And those rates are more around 0.5% to 1%. So we're continuing to evolve our disclosures and moving forward, we'll look to give more forward-looking guidance on what that royalty rate looks like going forward, but those are -- if you're looking to model some broad numbers to use.

Your next question comes from Patrick Scholes from Truist Securities.

Sorry if I missed this. Did you give an outline or a guided range for expected return of capital such as combination of share repurchases and dividends? And if not, would you be able to do so? No, Patrick. We did not give any guidance as we typically do not. We think about our capital allocation, obviously, as we've talked many times on the call, we, first and foremost, always look to invest our capital back into the business organically as we think that's the highest return to shareholders. If there is meaningful and accretive M&A, we certainly look at that. And then with our excess cash flows, we do return those to our shareholders through dividends and share repurchases. But we typically do not provide guidance on that. We'll continue to evaluate those opportunities. And as the year goes on, we'll report on how we allocate that capital. But as we typically have not, we did not give guidance.

Okay. I do think it would be helpful from talking with quite a few investors about this. If you did, just a suggestion, certainly, it is well received the way Hilton and Marriott to in their earnings releases.

Your next question comes from Trey Bowers from Wells Fargo.

Just a couple of more financial questions. Working capital and other was a pretty big drag in 2025. As we look to model '26, should we expect a reversal of that $98 million? Or is there anything to call out specifically that's driving that?

Sure. Welcome, Trey. This is your first earnings call with us, so we're glad to have you -- for covering our company. Yes, there are some timing reversal items that are in there are really around just the timing of some tax payments that we have made that will obviously be utilized in 2026 as well as other some other working capital. So I would expect most of that to reverse going forward in 2026.

Great. And then thank you, guys for the clarity on the capital outlay. Just as we look to model that, is that more an increase in the distributions and proceeds coming back to you? Or is it in lockstep with that also lower contributions, a little bit of both? Or just if you could give a little more granular detail around the multiple items that kind of feed into that?

Yes, Trey, welcome. And it's a little bit of both, as we've talked about, lower money per unit and then also the tapering off of Everhome this year and the completion of Cambria last year. as we think about recycling, a lot of that is going to be driven by market conditions around the attractiveness of the buy-sell bid ask that's out in the market to allow us to move some of that those owned hotels back to franchised hotels.

Yes. When you look at the recycle capital, I'd say the step down that I mentioned the 70% reduction. That's primarily on outlays. So as we mentioned, we're tapering these down. So we expect recycling. This year, we did about $32 million, that'd be somewhere in that same range with opportunities to do more of the transaction market rebounds here, but really the step down is really about outlays as we start tapering down those programs.

Thank you. Your next question comes from Meredith Jansen from HSBC.

I was hoping you might speak a little bit more about conversions in terms of how they're breaking down from independents or other branded companies. potentially how you think about inter-branded conversion? I know that separately and maybe a little bit of regional color there.

And a second part of this, and I think I understand Pat from your comments, you may have a different take on it. I was listening to a CEO, interview Allie and Alison he talked about how given lender comfort and more conversion options that conversion levels were going to be structurally higher that there was a change there. And I would love to get your thoughts on that.

Sure. Yes. Definitely, when you see where the marketplace has been kind of a flattish RevPAR for the last couple of years and interest rates being high, that has driven new construction down. So it's become much more of a conversion model. That's an area that hotels has led on for years. And they do pick up in times like the global financial crisis, the pandemic and even in the last couple of years as new construction projects have just been harder to finance. So it's an area where -- up strength for us, where the conversion opportunities come from. For us, I always say when times are a little tough for hotel owners, independent hotels come in out of the rain. They want to come into a brand that has, hey, it's a proven brand.

But b, it's got a loyalty program, revenue management, opportunity to lower their costs through the use of our tools and our procurement programs and the like. So those are the types of hotels we normally see. And that's why brands like Ascend do well in times like this and had a very good year last year. brands like quality and our economy brands kind of picking up with new units. So that's where the growth is coming from into those brands, but it's primarily coming from I would say, independents and then -- there are some other branded conversions. That's the -- usually the second highest contributor to our new conversion or new entrant model that are from the conversion hotels.

There are no further questions at this time. I will now turn the call over to Choice's CEO, Pat Pacious for closing remarks. Please go ahead.

Well, thank you, operator, and thanks, everyone, for joining us this morning. We look forward to hearing you again in to speaking with you again in May when we report our first quarter results. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to Choice Hotels International's Third Quarter 2025 Earnings Call. [Operator Instructions] I will now turn the call over to Allie Summers, Senior Director of Investor Relations. Please go ahead.

Good morning, and thank you for joining us. Before we begin, please note that today's discussion includes forward-looking statements as defined under U.S. securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied.

For more information, please refer to our filings with the SEC, including our most recent Forms 10-K and 10-Q. These statements speak only as of today, and we undertake no obligation to update them. A reconciliation of any non-GAAP financial measures referenced in today's remarks is included in our earnings press release available on the Investor Relations section of choicehotels.com.

Today's remarks also include projected non-GAAP adjusted EBITDA contributions from our international operations. We are unable to provide a reconciliation to comparable net income projections without unreasonable effort as the necessary adjustments cannot be reasonably estimated for the period. The impact of this unavailable information could be significant relative to our expectations due to the inherent difficulty in forecasting certain items.

Joining me this morning are Pat Pacious, our President and Chief Executive Officer; and Scott Oaksmith, our Chief Financial Officer. Pat will discuss our business performance and strategic progress and Scott will review our financial results and outlook.

And with that, I will turn the call over to Pat.

Thank you, Allie, and good morning, everyone. We appreciate you joining us today. In the third quarter, we drove adjusted EBITDA 7% higher to $190 million, reflecting the strength of our higher revenue brand mix, a surge in our small and medium business traveler and group's business revenue, continued momentum across our partnership revenue streams and the accelerating earnings contribution now coming from our expanding international business.

The strength of these earnings drivers allows us to raise the midpoint of our full year earnings outlook and tighten the range reinforcing our confidence in the growth of our global business going forward. During the quarter, we increased our net global rooms by nearly 2.5% year-over-year and growth was led by continued expansion in higher revenue segments, where we grew by nearly 3.5%, along with higher revenues per hotel across all segments.

Today, 90% of our global portfolio consists of those higher revenue-generating rooms, further strengthening the value we deliver to guests, franchisees and shareholders. The future growth of our portfolio is compelling, fueled by robust developer interest with global franchise agreements awarded up 54% year-over-year. And today, of rooms in our global pipeline are in higher revenue brands. As shown in our investor supplementary materials, these hotels are expected to be 1.7x more accretive than our current portfolio, driven by their RevPAR premium higher effective royalty rates and larger average room counts. This pipeline strength underscores our ability to continue to elevate our earnings per unit by adding accretive hotels to our platform.

Our pipeline is important not only for its size but also for the quality of the hotels within it and the velocity at which we are able to convert signings into openings. In fact, the number of hotels that opened over the past year without ever appearing in our global pipeline, accounted for approximately 1% of the system-wide unit growth. As we look ahead, we're optimistic about the next phase of the U.S. lodging cycle and its impact on new construction openings.

In the U.S., we expect last week's lowering of interest rates, continued investments in the build-out of AI infrastructure and a constructive regulatory environment will drive stronger demand especially for our travelers. Combined with low industry supply growth, continued favorable demographic trends and significant demand catalysts such as the 2026 World Cup, the U.S. 250th anniversary and the Route 66 Centennial, these tailwinds are expected to generate incremental travel across our markets, and set the stage for stronger RevPAR growth in the years ahead. Backed by the strength of our core travel base, retirees, road trippers and America's blue and gray collar workforce.

Our purpose-built hotel portfolio is well positioned for sustained growth. As we look for signs as to when the cycle in the U.S. may turn positive for our business, 2 indicators are moving in the right direction. First, our Economy transient segment occupancy performance has begun to improve year-to-date and has shown year-over-year growth in each of the last 2 quarters excluding the impact of the third quarter 2024 hurricane. This segment was also the first to recover after the last period of demand softening, followed by the midscale segment.

Second, occupancy index across our entire U.S. portfolio is up slightly year-to-date, a constructive early indicator that in prior cycles, has preceded broader U.S. RevPAR growth. Turning to our business outside the U.S. 2025 has been the year that we put the final pieces of our growth foundation in place, and we're very excited about the future.

Our international business which represents $3 billion in gross rooms revenue is now our highest growth opportunity. As highlighted in our supplemental investor materials, our teams have made incredible progress in improving the value proposition of our brands. They've delivered higher earnings per hotel, higher royalties and higher operating margins for our business internationally. We've built a scalable global platform and successfully repositioned the business towards a higher-value direct franchising business model, which has grown by 22 percentage points over the past 3 years, and now represents 40% of our international rooms portfolio.

Over that same period, our international EBITDA margins have expanded to 70% and per unit EBITDA has tripled. The foundation we've built gives us high confidence in our ability to capture rising demand across markets where our brands have a meaningful runway for growth and a significant opportunity for continued royalty rate expansion.

With this momentum, we expect to generate more than $50 million in international adjusted EBITDA by 2027, doubling from our 2024 baseline. In the third quarter alone, we achieved 35% growth in adjusted international EBITDA, and we expanded our international portfolio by over 8% year-over-year surpassing 150,000 rooms outside the U.S. That growth was fueled by a 66% year-over-year increase in hotel openings.

In EMEA, our portfolio grew to nearly 64,000 rooms, up 7% year-over-year. We're especially encouraged by the progress in France, where we expect to onboard over 4,800 mid-scale rooms under direct franchise agreements by year-end, nearly doubling our presence. This milestone highlights our ability to continue to scale our direct franchising markets. We also recently entered Africa with our first development agreement, including a flagship property in Kenya's Masai Mara, Game Reserve, marking the start of broader expansion across Central and Southern Africa.

In the Caribbean and Latin America, we expanded our footprint by nearly 50% over the past 3 years to more than 25,000 rooms across more than 20 countries. Just 2 weeks ago, we hosted our first Choice Hotels CALA convention in Mexico, where we saw tremendous enthusiasm for our upscale and mid-scale brands. Our targeted business travel strategy is reshaping the guest mix.

With about 60% of stays in the region, now business related, driving weekday demand, higher spend and long-term loyalty. We also entered a new direct market, Argentina, with the opening of the Radisson Blue in Patagonia and recently signed an agreement for a new upscale Radisson Red. This follows the successful opening of the Radisson Red Sao Paulo a couple of months ago, further strengthening our upscale and upper upscale presence in the region. Elsewhere in the Americas, following the full consolidation of Choice Hotels Canada, we've transitioned to a direct franchising model and are already seeing impressive results from the 355 Canadian hotels with third quarter Canadian RevPAR up 7% year-over-year and growing franchisee interest across our brands.

In Asia Pacific, since launching our Ascend collection in China, just 5 months ago, we've already onboarded nearly 80% of the more than 9,500 anticipated upscale rooms with the remainder expected by year-end. We are on track to add roughly 10,000 mid-scale rooms over the next 5 years, significantly expanding our reach among Chinese travelers and driving valuable outbound traffic to our hotels in the rest of Asia and beyond. We also successfully launched our mid-scale extended stay brand, MainStay Suites in Australia, marking the first expansion outside North America. This direct franchise agreement adds nearly 600 rooms and marks the first step in extended stay growth across the region. All of this exciting progress around the world has positioned our international business as our fastest-growing segment.

Our second fastest earnings growth segment is extended stay in the U.S. Over the past 5 years, we've expanded our U.S. extended stay portfolio by more than 20%, now exceeding 55,000 rooms. We've delivered 9 consecutive quarters of double-digit system size growth outpacing the industry.

Today, this cycle-resilient segment represents nearly half of our U.S. pipeline offering longer average days, higher margin and stable revenue streams. Despite a challenging new construction environment for the industry, our Everhome Suites brand continues to gain traction.

We now have 23 hotels open, 16 of which opened this year and 40 more U.S. projects in the pipeline, including 12 under construction. In the third quarter, we more than doubled Everhome openings year-over-year, expanding into fast-growing markets like San Antonio, Texas, a key emerging data center hub. Nationwide, the manufacturing and data center build-out is fueling strong long-term demand for extended stay. And with 40% of all economy and mid-scale extended stay rooms under construction, belonging to Choice brands, we're exceptionally well positioned to maintain segment leadership.

Our strategic expansion into higher revenue-generating segment is also strengthening our economy transient brands. Through deliberate portfolio optimization, we've been replacing lower-performing assets with higher quality, more profitable hotels, lifting guest satisfaction and brand equity. As a result, our economy transient hotels are outperforming comparable hotels within their chain scale in RevPAR growth and gaining RevPAR index share. This strong performance is attracting developer interest, driving a 35% year-over-year increase in our U.S. economy transient rooms pipeline and a 27% year-over-year rise in U.S. franchise agreements awarded in the third quarter.

Importantly, the new hotels entering our system are expected to generate, on average, higher royalty revenue than those we strategically exited. In our mid-scale segment, developer interest remained strong with our global pipeline up 5% year-over-year. The redesigned country and in suites by Radisson prototype engineered for cost efficiency and ease of conversion has reinvigorated the brand.

In the third quarter, we doubled the U.S. franchise agreements awarded and grew the U.S. pipeline by 15% year-over-year, reflecting renewed developer confidence and we remain on track to deliver year-over-year growth in brand openings in 2026. In our upscale category, we continue to expand rapidly increasing our global system size by 21% year-over-year to 118,000 rooms and driving a 33% increase in U.S. franchise agreements executed during the quarter. As I mentioned earlier, the velocity with which we move hotels through our pipeline remains a key differentiator.

On average, our conversion hotels open within 3 to 6 months about 80% faster than new construction, allowing both Choice and our franchisees to capture revenue earlier. Choice remains the leader in the share of conversion hotels in its segments. In the third quarter, our U.S. conversion franchise agreements increased 7% year-over-year, and we expect conversions to remain a core growth driver through year-end and to account for approximately 80% of total U.S. openings in 2025.

Now let's turn to the exciting investments we are making in our franchisee success system. Choice continues to have the best technology team in the business. We're especially proud that Forbes recently recognized Choice as one of America's best employers for tech workers, a testament to our culture of innovation and talented teams shaping the future of travel through technology.

Today, we're building on our leadership in cloud computing and data to evolve Choice's technology stack into an intelligent, always-on ecosystem one where autonomous agents continuously help franchisees optimize rate and revenue management, streamline operations and free franchisees to focus on delivering exceptional guest experiences. Our systems are advancing from a tool to a true teammate, reflecting Choice's long-standing commitment to helping owners succeed from day one. Backed by our $60 million technology investment program now nearing completion and on track to conclude next year, this transformation will mark a pivotal step forward in how our platforms empower franchisees to achieve more.

These next-generation systems will understand intent, reason across data sources and take action autonomously, equipping our owners with predictive insights, automated workflows and real-time decision support to unlock new levels of efficiency, profitability and growth. As part of our technology investment program, we're also expanding our reach in business travel and deepening guest loyalty, driving higher customer lifetime value and further strengthening our competitive edge.

The transformation is designed to deliver durable RevPAR growth, expand RevPAR index share and support long-term rooms expansion. We're already seeing measurable impact with year-to-date occupancy share gains versus competitors through September. In business travel, we strengthened our position by expanding and elevating our global sales capabilities. Business travelers now represent roughly 40% of stays, creating a balanced mix that supports rate stability across economic cycles.

In the third quarter, group revenue rose 35% year-over-year while small and medium business revenue grew 18%. Importantly, Choice's U.S. business traveler base continues to provide steady demand made up of guests whose jobs require travel, representing industries such as construction, utilities, health care staffing, logistics and manufacturing.

Today, we manage more than 1,600 global business accounts and serve a strong SMB and Smart base, underscoring our role as a trusted partner for business, group and event travel. Next year, we'll launch a dedicated digital platform for small and medium businesses tapping into a $13 billion opportunity to grow midweek occupancy and extend our corporate reach.

In addition, we're developing new AI-enabled RFP management and sales tools designed to streamline group sales, accelerate responsiveness and drive more high-value bookings. Let me now turn to the exciting progress we're making in the types of guests we serve. Across our portfolio, the quality of our guests continues to rise. Half of our U.S. guests now have household incomes above $100,000 and 1 in 5 exceed $200,000, representing an increasingly attractive customer base for both our franchisees and partners.

Recent enhancements in 2025 are delivering results. loyal members stay nearly twice as many nights, spend more per se than nonmembers, and are 7x more likely to book direct, driving greater customer lifetime value for choice and our franchisees. Just yesterday, we announced new benefits launching in January. This meaningful transformation of our program is designed to accelerate member growth, increase co-brand card revenue and strengthen direct bookings, further deepening engagement and fueling demand. The last time we revamped the program, we achieved a 700 basis point increase in loyalty contribution, giving us strong confidence in this next evolution. The enhancements in our rewards program are designed to further activate the expanding core demographic that we expect will drive demand well into the future, retirees and near retirees. This growing demographic now represents nearly 30% of our revenue and continues to be among the most valuable and active travelers on the road. They spend more at our hotels and are twice as likely to be members of our rewards program. This year alone, more than 4 million Americans are reaching retirement age, the largest cohort in U.S. history, entering their peak leisure travel years with record levels of disposable income.

By 2030, 1 in 5 Americans will be 65 or older, representing an expanding base of affluent travel-ready consumers who spend more on travel than younger generations. Studies show that spending by this golden generation is expected to increase by 70%, reaching nearly $15 billion over this time period. With gas prices at multiyear lows and expected to go lower next year, Choice is uniquely positioned to serve these travelers, supported by our extensive portfolio of convenience dry 2 locations that appeal to the millions of road trippers hitting the open road for new experiences.

Our next-generation loyalty program is built to capture this growing demand. giving these high-value guests even more reasons to stay with choice. And in an AI-driven world, travelers will gravitate towards brands they know and trust and those they have real relationships with. That's why our loyalty evolution is focused on deepening those connections, positioning choice to capture this next wave of demand.

Together, these initiatives are driving greater demand and creating higher customer lifetime value for our franchisees. We're confident these investments and those still to come will expand our growth opportunities and create meaningful long-term shareholder value. Importantly, we're positioning choice for enhanced performance and sustained growth. our technology forward strategy and disciplined execution, combined with an asset-light fee-based model, have meaningfully strengthened our growth trajectory even in the dynamic macroeconomic environment. We continue to generate substantial free cash flow, enabling us to reinvest in high-return initiatives that fuel growth while delivering sustainable value to our shareholders. We are confident that our strategy will continue to unlock scalable growth opportunities, expand market share and drive long-term returns.

With that, I will now turn the call over to our CFO. Scott?

Thanks, Pat, and good morning, everyone. Today, I will cover 3 key areas: our third quarter financial results, our balance sheet and capital allocation and our outlook for the remainder of 2025. We delivered record third quarter adjusted EBITDA of $190 million, up 7% year-over-year despite a softer U.S. RevPAR environment. This performance underscores the strength of our diversified revenue streams and the early returns from our strategic investments.

Our record quarterly performance was driven by system-wide rooms growth and our higher revenue extended-stay and upscale segments, a higher average royalty rate the continued expansion of our international business, including the introduction of our brands in new markets and strong partnership revenue.

Let's turn to the 3 drivers of royalty fee growth, unit growth, RevPAR performance and royalty rate. In the third quarter, we grew our global rooms 2.3% year-over-year, led by a 3.3% growth across our higher revenue segments, upscale, extended-stay and mid-scale. Each segment delivered strong results in the third quarter, reflecting the benefits of our deliberate investments and disciplined portfolio focus. Our U.S. extended stay room system size grew 12% year-over-year. highlighted by a 14% increase in openings. At the same time, we awarded 30% more franchise agreements in the U.S. year-over-year.

We strengthened our position in the mid-scale segment, our global pipeline increasing 5% year-over-year. Specifically, our flagship Comfort brand saw U.S. new construction franchise agreements doubled year-over-year with the new construction U.S. pipeline accelerating quarter-over-quarter. In the upscale segment, we expanded our global rooms portfolio by 7% quarter-over-quarter and attracted strong developer demand.

Our SEM collection now exceeding 72,000 rooms worldwide saw a sixfold increase in global openings and twice as many franchise agreements awarded in the U.S. versus last year. Even in a challenging construction environment, we awarded more U.S. new construction franchise agreements than last year and opened 15% more U.S. new construction hotels in the third quarter year-over-year.

Our focus remains on elevating the quality of our portfolio. We continue to strategically exit select assets that under-index our portfolio and fail to meet our requirements while maintaining system-wide growth, clear evidence that our portfolio optimization strategy is working.

Turning to our RevPAR performance. Our global RevPAR for the third quarter was flat compared to the prior year, led by strong performance from our international markets. We achieved third quarter RevPAR growth across every region outside the U.S. with overall international RevPAR up 9.5% year-over-year. On a constant currency basis, international RevPAR growth was led by the EMEA region, which delivered 11% year-over-year increase. The Americas and Asia Pacific regions each posted 5% year-over-year RevPAR growth. We were particularly pleased with the performance of our Canadian operations, where RevPAR increased 7% in the third quarter.

Our U.S. third quarter RevPAR declined 3.2% year-over-year, primarily reflecting softer government and international inbound demand. Even so, we achieved year-to-date occupancy share index gains versus our competitors, driven by strategic investments that enhance customer lifetime value for our franchisees. Our extended stay segment of the United States outperformed the industry RevPAR by 20 basis points in the quarter and delivered a 1.4% year-to-date growth through September. At the same time, our U.S. transient economy segment outperformed its change-scale RevPAR by 310 basis points and gained RevPAR index share versus competitors year-to-date through September.

Looking ahead, we remain confident in our ability to deliver sustained RevPAR growth and expand our RevPAR index share. This confidence is grounded in our disciplined high-return investments that broaden our business travel base, deepen loyalty engagement and position us to capture long-term demand supported by favorable demographic trends. particularly the expanding retiree leisure segment and America's blue and gray collar workforce.

Moving to royalty rate. Our third lever of royalty fee growth. In the third quarter, the average U.S. royalty rate increased by 10 basis points year-over-year, reflecting our continued strategic focus towards higher revenue brands and a stronger franchisee value proposition. We remain confident in the future growth trajectory of our system-wide royalty rates, supported by ongoing investments that improve reservation delivery to our franchisees and a robust development pipeline. This pipeline reflects contracts with higher royalty rates, larger average room counts and a RevPAR premium, all of which provide a clear path for long-term revenue growth.

Turning to our partnership business. Our focus remains on strengthening relationships with our strategic partners and suppliers, which was evidenced in a 19% year-over-year increase in revenues this quarter. Growth was driven by strong co-brand credit card fees as well as increased suppliers and strategic partnership fees. As we've enhanced our franchisees facing service offerings, adoption has continued to rise, driving steady growth in our non-RevPAR-related franchise fees across the broad range of services we provide. Expanding our partnership revenue streams and non-RevPAR franchise fees remains 1 of our key priorities and represents a meaningful opportunity for continued earnings diversification and growth. We continue to focus on driving our top line growth while enhancing associate productivity and operational efficiency. We see meaningful opportunities to deploy labor-saving technologies that will deliver significant productivity gains across the enterprise and help mitigate SG&A growth. As a result, we continue to expect adjusted SG&A to increase at a low single-digit rate from our 2024 base of $276 million.

Finally, our adjusted earnings per share were $2.10 for third quarter 2025 compared to $2.23 in the prior year quarter. The year-over-year comparison reflects the impact of our acquisition of the remaining 50% interest in the Choice Hotels Canada joint venture, which resulted in higher amortization expense related to the acquired intangible assets, a temporary increase in income tax expense expected to reverse in the fourth quarter, the reevaluation of our previously held ownership interest in the joint venture and unrealized foreign currency adjustments across our broader operations. Excluding these items, third quarter adjusted EPS would have been $2.27 representing a 2% year-over-year increase. Now let's move to the balance sheet and capital allocation.

As of September 30, we generated $185 million in operating cash flow through September including $69 million in the third quarter. This strong cash generation and the healthy balance sheet underpin our capital allocation priorities, investing in growth initiatives and accretive acquisitions while returning capital to shareholders. Year-to-date through September, we returned $150 million to shareholders in dividends and share repurchases. We continue to deploy capital selectively to scale Cambria Hotels and Everhome Suites, while maintaining a disciplined approach to recycling that capital at the right time. In the third quarter, we generated $25 million in net proceeds from recycling activities and year-to-date, our hotel development related net outlays and lending declined by $53 million. We expect 2025 to be the final year of developing new company-owned Cambria hotels, followed by Everhome Suites in 2026. We with investments expected to be completed in 2027. As the interest rate environment continues to improve and the hotel transaction market recovers, we also expect our capital recycling activity to accelerate. We ended the quarter with a net debt to trailing 12-month EBITDA of 3x and a liquidity of $564 million.

Finally, I'd like to discuss our outlook for the remainder of the year. For the full year, we now expect U.S. RevPAR to range between minus 3% and minus 2%. As a reminder, fourth quarter comparisons will be impacted by elevated hurricane-related demand in the prior year. and we continue to monitor potential impacts related to the government shutdown. We are tightening our full year adjusted EBITDA with the midpoint up by $1 million. We now expect adjusted EBITDA to range between $620 million and $632 million. We are adjusting our full year adjusted EPS guidance to range from $6.82 to $7.05. And primarily reflecting additional amortization expense related to the intangible assets from the Choice Hotels Canada acquisition, which was not included in prior guidance as well as lower equity earnings from joint ventures due to the timing of hotel openings.

Our fourth quarter recurring effective income tax rate is expected to be approximately 21%, reflecting the timing of tax recognition between the third and fourth quarters, as previously discussed. Our full year effective recurring rate guidance remains at approximately 25%. We now expect full year 2025 franchise agreement acquisition costs to be lower than in 2024. Our outlook excludes any additional M&A, share repurchases after September 30 or other capital markets activity.

Our third quarter results demonstrate the success of our strategy and highlight the benefits of our expanded scale and diversified business model, even in a softer U.S. RevPAR environment. We'll continue to invest in high-return areas that enhance our long-term trajectory and drive meaningful shareholder value. Looking ahead, we remain confident in the durability and strength of our fee-based business model. We expect growth to be driven by higher revenue hotels, average royalty rate growth expanding partnership revenues, sustained international momentum and strategic initiatives designed to enhance customer lifetime value for our franchisees.

Pat and I are now happy to take your questions. Operator?

[Operator Instructions] Your first question comes from Michael Bellisario with Baird.

First on this Everhome joint venture that you guys announced in July, I think just in the past, you had mentioned that you were going to recycle owned assets. I know, Scott, you provided some comments there, too. I think we all assume that means those assets get sold to a third party and you did cash. But in this joint venture deal, you still own 80% and you're sort of committing to owning and developing hotels for longer or at least more of a medium-term holding period? I guess, help us understand the motivation, thought process here and how the economics of this deal are maybe better or different than previously owning and developing assets on your own balance sheet?

Yes. Our preferred vehicle has been to develop hotels through the joint ventures that we have. So what you saw in this transaction was really more of a timing of the transaction. So we had started a few hotels on our own balance sheet, owning them, that we're always intended to go into the joint venture, just it had not been fully set up at the time.

So when you take a look at the overall transaction, there were some sales from an accounting perspective that were treated as proceeds from sales. But ultimately, the way that transaction worked it netted us about a $25 million recycling. This doesn't change in terms of our long-term viewpoint on holding assets. As I've always said, we're in the moving business, not the storage business. And we have developed ever homes really to to launch that brand to get it to scale so that it's 100% franchised brand.

So even in this joint venture we either expect our JV partner to buy out our interest at some point in time or to go to market and sell those to additional third parties encumbered with long-term franchise agreements. As we talked about in the remarks, we're towards the tail end of our capital investment in both Cambria and Never home. We expect to wrap up with no new development in Cambria after this year. and then finishing the Everhome development in 2026, where our net capital outlays will be significantly lower. In fact, if you look at our Q3 results this year, we're actually about $50 million less in capital being used on our development of hotels.

So we're at the tail end of that. And as the transaction environment and interest rate environment improves, we do expect to be sellers of those hotels, whether they're on our owned assets or in these JVs.

Okay. That's helpful. And then just similarly, on capital allocation, what was the rationale for not buying back stock during the quarter, especially when it was down so much versus levels where you had previously been repurchasing stock?

Yes, Michael, I mean then we look at our capital allocation hierarchy to invest in the business to do accretive M&A and then return to capital to shareholders through dividends and share repurchases. We bought the other half of Canada we did not own in the third quarter.

So that capital outlay was sort of the kind of -- it rises higher from that standpoint as to what creates more long-term value for shareholders. I would say if you look at our pace of sort of how we've been deploying capital we're effectively on pace through the third quarter with the acquisition and the share repurchases we did in the prior part of the year. But yes, absolutely, it's a very attractive price at this point, but that was the way we deployed our capital in the third quarter.

The next question comes from Lizzie Dove with Goldman Sachs.

I just wanted to ask about the longer-term outlook for rooms growth, particularly in the U.S. It's been tracking down every year, at least when you kind of strip out waste from there. And so as we move forward over the next or 2, what's the kind of base case expectation? And what are you kind of seeing in the development environment or the conversion environment really in the U.S. to drive that?

Sure. So if you look at our pipeline and where we've been focused really for the last 5 years is on bringing higher-quality product into the pipeline and therefore, moving that into the system. And that is going to continue. If you look at the makeup that we talked about in our remarks about 98% of what's in the pipeline today is in those higher-value segments. What we've been opening, and as we've mentioned in the remarks, there's actually because we're doing a lot more conversions they open anywhere between 3 and 6 months on average.

But that also means we're opening hotels in less than 3 months. And so many of those show up as openings, but never even show up in the pipeline. And that's really, as we mentioned in the remarks, about 1% of our unit growth came from the hotels that opened that quickly. So when you look at the pipeline, it's not only the size of it, but it's also the quality of the hotels that are in there. But as importantly as the velocity with which because we've been doing conversions as a company for so many years, we're able to get these hotels open quickly for owners, and that allows them to capture revenue early and us as well. And so as I think as we look into next year, just given the limited supply growth that's been going on in the U.S. from a new construction perspective.

I would expect that trend to continue well into 2026. So that's sort of probably how we would think about the setup for the conversions coming out of the pipeline and the net rooms growth in the U.S.

Got it. That's helpful. And then on to the RevPAR environment, I appreciate the comments you made with some of the green shoots and also World Cup and whatnot next year. I'm curious how you would think about just how much of what's going on at the lower end is structural or cyclical, especially in terms of competition from conversion brands like Spark, premium economy, things like that, the K-shaped recovery. Anything you can share there or then how you think about the long-term trajectory to be able to potentially grow domestic RevPAR again longer term.

Yes. Sure, Lizzie, from our perspective, this is a cyclical business. I mean when I've been at choice for 20 years, and I was probably the third one of these we've been through. The green shoots you do look for is when does occupancy stop dropping. That then gives owners confidence when they set price. And so that's the kind of early indicators that we've seen where the cycle starts to turn, and that's -- in fact, what we're starting to see in our chain scales in our segments and our brands. And we're pretty excited with what we're actually seeing in the economy segment, which, again, is the segment that usually leads you out of one of these cyclical downturns.

So I feel pretty good about sort of what we're seeing on that front. I'd say on the consumer front, this is -- that sort of question around this K-shaped recovery. I think it's missing the fact that you've got a ton of -- I mean, 75% of the people who work in this country work for a small and medium-sized business. And when we're seeing that surge in the SMB business in our hotels, it's because of the types of travelers that are -- the labor force is effectively shifting towards the types of travels that stay in our hotels, construction, utilities, medical staffing, which is traveling nurses and the like, there's a pretty significant tailwind that we see from a business travelers perspective.

The other is what we talked about, which is our retirees and road trippers. And about 30% of our business today are those folks who are 60 years old and older. They're sitting on tremendous wealth in their homes. They're sitting on very attractive stock portfolios, and they've got discretionary income and the time to travel. So we are seeing that traveler on the road, and we expect to see more of them the investments we're making in our loyalty programs that are going to kick off here on the first of January, we're really designed to drive more of that business. And we know that those are the folks who spend more in our hotels, they stay more often and they book direct, which is all a real positive from a unit economics within the hotels themselves.

So we feel pretty good about how the setup is coming for 2026 and those core demographics, the road trippers and retirees and then those blue and gray collar workers, those are expected to be demand drivers, and those are the folks who are in our hotels today, and we would expect we'll get more of that share as we move forward.

The next question comes from David Katz with Jefferies.

Yes. Two things, if I may. I just wanted to get whatever early perspectives you can share with us regarding 2026. I know I understand your business, obviously, and the booking window is short. But any thoughts on how we might use 2025 as a platform off of which to measure 2026? And then I have one quick follow-up, please.

Yes, David, I would look at the 2 things I just spoke about. I mean, I think when you look at our share, and we talked about that in the remarks, of those 60-year-old travelers and above. The research shows they call them the golden travelers because they've got all this time and they've got all this wealth and they are traveling more this year. And that number that cohort is going to grow. We've talked about by 2030, 1 in 5 Americans is going to be at retirement age.

And so over the next 5 years, that cohort only continues to grow. And we overindex for that type of traveler in our portfolio today, and we intend to bring in on that. And then I think on the business travel side, when you look at our business traveler mix, I know you've been around the stock a long time, we used to be 70-30 leisure business. We're now 60-40, and that small business traveler is a much more resilient traveler because they have to travel for their jobs. And what we're seeing, particularly with what AI is doing to the workforce, we're going to see more people who are in that sort of blue and great travel segment. When you look at the job gains and you look at the small business formation that's occurring, they're in the segments that travel in our hotels. And so when we look at that overall total available market for small and medium business, it's about $13 billion of travel on an annual basis. And I think our ability to capture more and more of that share is another positive that we're looking forward to.

So on top of that, I would just add our group's business revenue, which again is up 35% this year. That's a function of the fact that we have put more sellers out there. We have about 20% more sellers who are selling into our business category and our group's business. And so those are the things that I would point to as opportunities that choice is leaning into where the TAM is getting larger.

And David, what I'd add to that is when you step back and look at the broader business for 2026, obviously, we're still working through our planning process. But as we talked about in our remarks, our international business, we feel really strong about continued growth there and believe we're on pace to double that EBITDA contribution on the base year of 2024.

So we do expect strong growth from international next year. in addition from both our partnerships and services business and our platform and ancillary revenues -- as we've talked in the past, we do think we have a very good base to grow off in that mid- to high single-digit growth on those. And we also believe that we can continue to keep our cost relatively contained, especially with all the new tools and AI tools that are really driving cost efficiency throughout the business. So we're very optimistic on 2026.

Understood. And if I can just ask 1 follow-up. So much of the industry has evolved in terms of growth on ancillary fees, non-RevPAR fees, particularly around cards. And I know that you have some -- can you just elaborate on what the strategy or the vision for that is over time?

Yes. I mean when you look at the scale of our business, David, so you look at 7,500 hotels. We probably have somewhere 36 million room nights every year, and you've got multiple people staying in those rooms. So we have a significant opportunity to provide more services to our customers, to our guests in our hotels. And that is everything from co-brand to what we do on the timeshare side and the gaming side as well. And so that's a real opportunity for us. We do see those trends growing and that's reflected in our numbers. I would say on the franchisee side of the house, we are offering more services to our franchisees and the adoption rate of those services is increasing.

So those are the drivers that are impacting the the owner side of the house, the franchisee side of the house. So both of those trends, the consumer growth and the franchisee growth and our ability to sell more services into both of those customer bases or what we -- from a strategy perspective, those are things that we're leaning into and have been pretty earnings accretive over the last several years, and we would expect them to be so in the future.

The next question comes from Stephen Grambling with Morgan Stanley.

I know it's early to be putting 10 to paper for 2026 expectations. But with all the moving parts on expenses, and I know you talked about AI opportunities. How should we be thinking about the run rate or baseline for SG&A this year and then what the growth rate might look like next year, particularly if RevPAR does start recovering?

Yes. We -- as I mentioned, we continue to believe we can maintain SG&A at a low single-digit growth rate. If you look at our results so far through this year, year-to-date, SG&A is up about 3%. And when you take out the acquisition of our Canadian joint venture, it's about 2.5%. As we mentioned, we're finding a lot of labor saving tools and efficiencies with the AI tools that we've already brought into the system. And so I would say going forward, we would be able to model something around that low to mid-single-digit SG&A going forward.

Yes, Stephen, it's pretty exciting that the tools we've already deployed across our workforce and the things that we are working on today, we implemented a new ERP system that went live a couple of months ago. But the intelligence in that system is reducing a huge amount of manual processes and helping our folks in the finance group, for instance, they don't have to do as much exception reporting that type of stuff because the system is providing that information to them. We're seeing it in our software development group. We're seeing significant productivity gains for our folks who build these tools that we deploy to our franchisees. And so it's a pretty exciting time for workforce productivity.

And you're going to see that number reflected in lower SG&A growth, I would expect as we move forward in the coming years.

That's helpful. And maybe 1 follow-up on AI. Are you currently providing any inventory to AI partners or large language models such as Gemini, ChatGPT or others. And maybe how do you think about the opportunity to partner from some of these channels and what maybe the cost of that channel looks like versus things like Google Ads or OTAs or other?

Yes, Steve, it's a great question. And I think at this point, when we look at the distribution landscape and AI's impact on it, the players are still taking the field right now. And so there's a lot of testing and learning, and we are doing some of that with some of these partners behind the scenes really to kind of say, is this going to work for us -- to be successful in this new world, you've got to have 2 things, and we have both of them. The first is all your systems need to be in the cloud.

And the second is you need to have control of and a high-quality level of your data. And most companies don't have that. Choice Hotels does. It's an area that we've invested in significantly -- all of our systems are in the cloud now we don't have any data centers anymore that are company-owned. And all of our data is accessible through the cloud as well. And so those are the 2 things that these LLM are looking for. If you build the right scaffolding around your data, which we have done, you then have the ability to communicate with these LLM and work through the ways that consumers who are starting their search for hotels if that's where they're going to start, we want to be able to be able to provide our inventory rates and availability through those models as well.

And so I would say at this point, the answer is we are exploring, as I'm sure many others are. But I feel like it's a pretty exciting opportunity for us because of the investments we've made over the last 3 or 4 years, in particular, to make ourselves AI ready. And we've actually been using AI in our tools for our franchisees for about 10 years. It used to be called robotic process automation and that was called machine learning. We're using it in a number of our franchisee-facing tools already. But this next step function change that we're working on, I think, is going to be really exciting because the tools that they have today effectively help them record what they're doing. Where we're moving to is a world where the tools that they will be using are going to help them understand what's the recommended next best action I should take with regard to my rate with regard to my channel management, whatever it might be, and we're really excited about the future for that because that choice, we've always kept the sort of franchisee-facing systems in-house.

So we're able to sort of take the benefits of AI, the productivity gains and the tools that are available and really bring them to our owners in a meaningful way. And so we've got some interesting things we're going to be launching with them in the coming months. And so from an excitement perspective, we really feel like the AI boom is going to help our owners make more money, and it's going to help our shareholders do so as well.

The next question comes from Dan Politzer with JPMorgan.

Pat, Scott, I was wondering if you could talk about the key money environment. It sounds like you're taking the expectations there for 2025 to be a little bit lower year-over-year. But maybe puts and takes into 2026, as it seems like other competitors are still looking to increasingly grow their presence in that mid-scale segment in particular?

Yes. As we mentioned on the call, we do expect our key money to be lower than where we were in 2024. Really, I think that's a reflection of just the quality of our brands in terms of the competition. So we believe that we're driving top line revenue to our franchisees and our brands are very valuable. So when people are looking to convert, we're seeing that we don't need to use as much key money as some of our competitors to win those contracts. In fact, average key money per deal was down about 11% for the first 9 months of the year.

So yes, it is a competitive environment, but we do believe that our brands, especially in that mid-scale and upper mid-scale space where really choice has been a leader for many years. We do understand what our franchisees need, what it takes to run a very successful business and capture those customers that Pat talked about a little bit earlier. So -- we're optimistic that the Key MONI environment should be kind of hitting a peak here as interest rates come down, and hopefully, we'll see a turnaround on the RevPAR front where that will be needed less to win deals.

Yes. I would just add, since Labor Day, I've been out at 5 franchisee events that's collectively probably about represent about 1,500 hotels. So these are all owner meetings that we do for a couple of days. And without fail, our owners are telling us that they value our brands and some of them who moved to try these other brands have come back and said. We made a mistake, our performance is down. When you look at the value of a brand that has the awareness of a quality in or comfort in, those things are driving guests and we own those guests. We own those mid-scale travelers. So the need for key money in the ability to win these contracts is not as necessary when you have strong, powerful brands, particularly in the mid-scale segment.

Got it. And then in terms of the free cash flow conversion, was there anything kind of nuanced in the quarter as it relates to that? And then can we think about -- what's the best way to think about full year '25 at that level that you might be able to convert.

Yes, there was some temporary timing differences in the quarter that drove the free cash flow a little bit lower, particularly as you'll see in our 10-Q, we did purchase some investment tax credits during the quarter that will have a reduction of our federal tax rates going forward. But the timing of the payment of those versus the realization of the taxes will be between the third and the fourth quarter.

So as I mentioned in my remarks, our third quarter rate was a little bit higher than where it will be for the full year, but that caused a little volatility. So we would generally believe that we'll be in a free cash flow conversion more similar to where our percentages were last year in that 60% to 65% range.

The next question comes from Dany Asad with Bank of America. .

Pat and Scott. I -- look, your international growth strategy seems to be picking up steam. So my question is just give us a sense for how much rooms growth we could expect in the coming year on the international front? And then any color you can give us on key regions that would be driving that growth would be super helpful.

Yes. So let me just start with -- I mean when you look at our current business as we sit here today, it's about $3 billion in annual gross room revenue outside of the U.S. And so we have a real significant opportunity to capture more the fees from that from improving our value proposition. And so that's really the upside that we've been experiencing. And if you look at the supplemental materials, that we put in the -- on the website, we've really transformed that business over the last couple of years, moving to now a 40% direct franchising business, which is up 20%.

And moving about 1,400 hotels, which is about up 200 hotels from 2022 and then getting our EBITDA margin up over 70%. So those are all really positive healthy metrics. And we now have the talent and the brands and the business model to be successful in all 3 regions of the world. So just looking to your question, looking at the Americas, bringing the other half of Canada onto our platform and being owned by us now is a real huge opportunity for us. We have 355 hotels up there. And we now have the opportunity to unlock more value there. And it's important to recognize that the quality of the product up there and this is true throughout the world. But when you look at Clarion and Quality in, for instance, you're talking about 3- and 4-star hotels outside of the U.S.

So the RevPAR that those hotels are able to generate is significantly higher I was just down in Mexico a couple of weeks ago with our Caribbean and Latin American teams. We had about 110 franchisees down there who came to the event. And we've grown our rounds portfolio down there by 60% over the last 4 years. We're now in 21 countries. And the excitement around our brands, particularly the Radisson brand that we have down in that part of the world is pretty significant. When you shift over to EMEA, we've really got to focus on 2 key markets, it's France and Spain, and the teams out there have done a really remarkable job in bringing more new direct franchise agreements in. We doubled our presence in France this year, which is a really healthy market, and we're continuing to grow in Spain as well.

And we've mentioned a few of the new markets that we've entered into in EMEA as well. And then when you shift to Asia Pac, we've always had a strong business in Australia, direct franchising, and we just introduced the Mainstay Suites brand there with 7 hotels opening an additional pipeline for more with the developers of the largest extended stay brand in Australia. So we've got a really strong partnership there, but a good opportunity to bring extended stay to Australia and New Zealand. And then as we mentioned in China, we now have a really significant growth partner, upscale hotel company. I think they're probably the fifth largest in China. But we've already onboarded about 80% of the 9,800 rooms there with a long-term agreement to grow some of our mid-scale brands in China. So we really feel good about this sort of across the world. We've laid the foundation. All we need to do now is execute. And I feel like with the talent we have, the new business model that we have in some of these markets, and the brand strength that we have, that's a very achievable goal for us going forward.

The next question comes from Robin Farley with UBS.

My question is on the growth in international units. And -- how should -- what should we expect for fee revenue in 2026, so you have a full year of them? I know China's master franchise, a lot of the other countries are direct franchise. -- are the franchise fee percentages the same. And when you give the royalty rate increase, I think that's only for your domestic properties. So will you start including international or giving us international separately just so we can think about the franchise fees program from the international and whether that will look different in kind of fee per room in the U.S.

Yes, Rob, we will -- going forward, probably we get to February, we'll be giving you more of a kind of a global RevPAR number to look at. The growth we've seen this year is not like an anomaly. The growth is something that has been present in our business. And so what we're seeing with the kind of lack of international inbound is a lot of those travelers are staying home and traveling in their domestic markets. And our presence in a lot of those markets has always been focused on the domestic traveler, whether it be Canada or Mexico or France or Spain. So we feel like the -- we're well set up for the trends that we would expect to see on a go-forward basis. I think when you look at the royalty fee, that's the opportunity for us as the value proposition gets better.

In the U.S., we have that sort of effective royalty rate north of 5%. We have in our direct franchise markets, something less than that. And then in the MFA market, it's even smaller. So as we shifted from MFA to direct, we're picking up that effective royalty rate gain. And we would expect that to grow as we invest more in the value proposition. I talked in our remarks, about this $60 million investment that we have, we're almost through the end of it, a lot of that capability is global in nature. So whether it's rate management or revenue management tools or these platforms we have for capturing small and medium business travelers, -- these are tools not just for the U.S. market. They were built to be global in nature. And we do expect, as we deploy those in these regions, we're going to improve the value prop, which will then be constructive towards moving the franchise fees higher.

And just to add to that, Robin, I look at our direct franchising business internationally, the effective royalty rates there are around 2.7%. And for direct franchising. And that's really where we've been focused is. We talked about we've seen a 21 percentage point increase in percentage of our business that's direct versus master franchise agreements. So certainly an area that we're focused on. And really what I look at, as Pat mentioned, really focusing on continue to improve our value proposition in Canada, which we recently acquired, it's probably where we're the most advanced in terms of our capabilities in terms of delivering business and that royalty rate is closer to 4%. So we have a lot of opportunity across the other markets as we continue to increase our business delivery to be able to raise the effective royalty rates on those contracts.

Okay. Great. That's super helpful. Maybe just as a follow-up, you gave some pretty big increases for U.S. economy pipeline. And -- it doesn't seem like broadly, there's a lot of new construction going on in the U.S. economy -- is there something -- is it just that it's a small base is making a large percent change? Or what is it that you're seeing with new construction for U.S. economy rooms that we're kind of not seeing broadly?

Yes. The economy segment has been a conversion market for a number of years. And so what you're seeing there is the value prop as it has gotten better for the entire system. -- the value prop within the economy segment has benefited as well. And so I think a lot of people have interpreted our revenue intent strategy means we're not focused on the economy segment. far from -- that's very far from the truth. What we've been doing in the economy segment is improving the product quality. And so as owners see that we are exiting hotels that no longer stick up or stick to the brand standards or unable to they're seeing that we're not letting our economy brands deteriorate that we're actually improving the likelihood to recommend scores, the product quality. And that's important for the types of guests that we serve, that we keep that product quality moving in the right direction. And that's what's increasing the owner interest, and that's what's increasing the franchise agreements being awarded and the pipeline being higher.

And that's really illustrated by the RevPAR performance we saw both in the quarter for the economy segment as well as the full year. We outpaced the Economy segment by 180 basis points in the quarter and were up 310 basis points year-to-date. It really speaks to the quality of that segment for us.

The next question comes from Brant Munter with Barclays.

So just a quick question on some of the accounting and on the revenue side. You guys talked about ancillary and credit card being helpful. And I was just hoping you could help us with some of the geography because the partnership line grew 20%. I think that I thought that was with credit card, but the other revenue line sort of doubled year-over-year on a restated basis. And I just wanted to understand what was in that, if there's anything onetime that we need to think about a net other line.

Brent, to your point, our co-branded credit card as well as our procurement businesses and other -- our timeshare business, those are all on the partnership line item on our financial statement. So that's where you're seeing the significant growth in those revenues.

Our other revenues include more kind of event-driven onetime items at times. So there was some timing of recognition during the quarter. In addition, there were some items that really were gross up pass-through type expenses and revenue. So you'll see about about $3.5 million of that other revenue line item was offset by the increase in SG&A in the quarter. If you took a look at our SG&A in the quarter, it was a little more elevated mainly due to those pass-through items. So I'd say the other revenue is up due to some pass-through items and some onetime event-driven revenues. But overall, we're still on track to hit the full year forecast.

Okay. That's really helpful. And then another question on business travel, you guys gave some helpful stats. -- business travel 40%. I think that's a global basis of mix. And SME grew 18%, which is obviously a huge number for revenue. Could you just square that -- those data points with RevPAR overall in the U.S. being down 2-plus percent. The only way I can really do it is if SME is a really small piece of business travel overall. But maybe you can just sort of help us square that.

Yes. I think part of this is the business or the product mix that we are shifting towards. So we are shifting towards more products that is appealing to business travelers. So it's not just we're attracting more of them, but the product mix has shifted, particularly with this extended stay segment growth that we have here in the U.S., it's -- there's a lot of business travelers that are in those hotels for weeks. And so that's a key driver of that.

Overall, our business travel was up about 2.5%. And within SMB, that, in particular, has grown pretty significantly by 18%. So we're really leaning in on those types of travelers because of the product that we now have and the locations we now have, and that's where they're going. They're going to the secondary and tertiary markets where they have to travel.

So when I look at the mix of that and if the significantly higher total available market being $13 billion, we are not yet at our fair share of that, and we expect that to grow as we get better in our sales tools and we get better in our RFP responses that our owners are doing. And so I would expect to see that percentage growth continue into the future.

And the other thing I would just add to that is when you think about the headwinds, the 2 areas that are offsetting that are really government travel which was down about 20% for us during the quarter. And then inbound travel from the Canadian travel continued to be down since the first quarter. So that was down about 30%. So those 2 things have brought down RevPAR even though we've seen tremendous success in growing our business travel.

The next question comes from Meredith Jensen with HSBC.

With hoping you might speak a little bit more on the international growth side. I know you've spoken a lot about it. But in terms of building sort of the support infrastructure for this really strong growth that we expect. Could you help us walk through some of the associated investments that might be necessary or how to view that expense ramp? And relatedly, as you weigh those kind of investment that needs to be made in certain complex regions. Again, I know you've discussed direct versus Natter franchise metrics before. But given the investments you may need to make, just sort of how that may evolve over time.

Yes, Meredith, I think what's -- what we want to emphasize here is most of those investments are things we've done in the last 4 years. If you look at the exhibit we put on our investor website today, you can see the margin growth that we've had over that time frame. So the investments are not in adding people or in adding systems. A lot of the systems that we have put in place are already there and the investment I talked about that's going to effectively start deploying in early '26 and throughout next year.

Those investments are in the rearview mirror for the most part. So what we have to do international is execute. And so there is a real opportunity here to do that, bringing the other half of Canada into the full company was really an opportunity for us to bring all that we do here in the U.S. to our hotels that are in Canada. And so it's not a new market for us. We've been in Canada for 70 years. We operated as part of those 70 years with a very good joint venture partner for 30 of those years.

So we know these markets very well. And whether it's Canada or Australia, New Zealand, Mexico, Korea and Latin America, we've got people who've been in those markets for a significant period of time. Our development teams are based in those markets. We run the markets effectively as domestic markets, so they're not relying on U.S. inbound for their growth. And so the autonomy that, that has allowed them to have has given them the opportunity to build the talent and really protect the brands. I think the other thing that's really important for shareholders to understand is outside of the U.S., the business traveler mix is 60% and 40% leisure in many of our markets.

So we have a much more resilient and higher-paying customer base. And our brands, the quality and brand, the quality and the Clarion brand, in particular, are of higher quality. They are usually 3 and 4-star hotels. So it's a very different business. outside of the U.S. And so the opportunity for us to continue to grow there is significant, but we just have to execute. It's an opportunity for us to grow our value prop and therefore, grow the effective royalty rate, we're able to drive in those markets.

That's super helpful. And one other quick addition to sort of follow on to what Liz asked about. We've been following the cost pressures on the franchisees. And I have noticed that some of the brands, notably Hyatt, I think, are working sort of evolve brand standards so that they have more flexibility to take on limited service brands with sort of less ability to invest at this point. Are you seeing any of that in the market raising the competitive environment, especially as you up-level your franchisee base? Or if you're seeing any of that dynamic or if it's different in terms of PIPS than in the past?

Yes. No, it's a great question. And I think when we talk about the country and the Swiss brand, in particular, -- we redid that prototype with that franchisee margin compression in mind to make sure that the hallmarks of the brand are being preserved. But as you think about the types of changes that we would need an owner who's converting or a new build to build 1 of our brands, we are constantly looking at that. It's the reason why Choice has always been the leader in conversion hotels.

The flexibility to make sure that a PIP is affordable for the owner makes sense for the market and preserves the brand hallmarks. Those are the 3 things that we look to do. That's something that we always do as a matter of course. It's not new for choice. So I think when you look at our ability to continue to grow our business in good times and bad, that's a key factor in driving all of that.

There are no further questions at this time. I will now turn the call over to Pat Pacious for closing remarks. Please go ahead, sir.

Well, thank you, operator, and thanks, everyone, for joining us this morning. We look forward to speaking with you again in February when we report our fourth quarter results. Have a great day.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to Choice Hotels International's Second Quarter 2025 Earnings Call. [Operator Instructions] I will now turn the conference over to Ms. Allie Summers, Investor Relations Senior Director for Choice Hotels. Thank you. Please go ahead.

Good morning, and thank you for joining us today. Before we begin, we would like to remind you that during this conference call, certain predictive or forward-looking statements will be used to assist you in understanding the company and its results. Actual results may differ materially from those indicated in forward-looking statements, and you should consult the company's Forms 10-Q, 10-K and other SEC filings for information about important risk factors affecting the company that you should consider. These forward-looking statements speak as of today's date, and we undertake no obligation to publicly update them to reflect subsequent events or circumstances.

You can find a reconciliation of our non-GAAP financial measures referred to in our remarks as part of our second quarter 2025 earnings press release, which is posted on our website at choicehotels.com under the Investor Relations section. This morning, Pat Pacious, President and Chief Executive Officer, will speak to our second quarter operating results and update on our strategic priorities, while Scott Oaksmith, Chief Financial Officer, will discuss our financial performance and outlook for the remainder of the year. Following our prepared remarks, we'll be glad to answer your questions. And with that, I will turn the call over to Pat.

Thank you, Allie, and good morning, everyone. We appreciate you taking the time to join us. I'm pleased to report that in the second quarter, the ongoing momentum from our strategic investments drove our adjusted EBITDA to $165 million and our adjusted earnings per share, 4% higher year-over-year. We also achieved a more than 2% year-over-year net increase in global rooms, including a 3% net increase in our more revenue intense rooms. We are particularly pleased with the strong performance of our international business where we drove 10% growth in adjusted EBITDA and expanded our rooms portfolio by 5% year-over-year, highlighted by a 15% increase in hotel openings.

With an 11% increase in our rooms pipeline since the start of the year, we are very optimistic about the continued accelerated growth of our more than 140,000 rooms outside of the U.S. and see a significant opportunity to further gain international market share in the coming years.

We are actively expanding our global footprint across strategic markets through a recent acquisition, strengthening of key partnerships and entry into new regions. In the Americas, in July, we acquired the remaining 50% interest in Choice Hotels Canada from our joint venture partner. This strategic acquisition marks the next chapter in Choice Hotels' 70-year presence in Canada, transitioning us from a master franchising to a fully direct franchising model.

Our Canadian team will now expand their product offering and franchise success system support from the current 8 hotel brands to our full portfolio of 22 with particularly strong growth potential for our extended stay brands. Canada presents an attractive opportunity with the lodging market projected to grow at an average annual rate of more than 5% over the next 5 years, reaching over $50 billion in total revenues by 2030. Our teams there have already established a strong base of 30,000 rooms, a pipeline of over 2,500 rooms, approximately 9 million customers and over 200 Canadian franchisees. This powerful foundation now positions us to capture additional market share by leveraging our local market expertise and Choice's franchisee success system across all 22 brands. Elsewhere in the Americas, we extended our master franchise agreement with the largest multi-brand hotel operator in South America, for an additional 20-year term, covering over 10,000 rooms in Brazil, thereby further strengthening our presence in the region.

In the EMEA region, we are very pleased with our progress in expanding our presence after successfully onboarding approximately 4,000 rooms under direct franchise agreements, we've grown our room count to over 63,000 rooms, a 7% increase from the prior year. We also entered a new European market by signing our first franchise agreement in Poland, one of the fastest-growing markets in Central and Eastern Europe.

Turning to Asia Pac. During the second quarter, our team signed a master franchising agreement with a leader in the upscale business hotel and resort segment in China. This relationship is expected to significantly accelerate the growth of our mid-scale portfolio in China with approximately 10,000 rooms over the next 5 years and increase Choice brand awareness among Chinese travelers internationally. Additionally, we secured a strategic distribution agreement, which will add over 9,500 upscale rooms to the Ascend Hotel Collection by the end of the third quarter, allowing our rewards members to earn and redeem points at these properties.

We believe these agreements mark the first steps towards a long-term expansion opportunity in the region. As we look at the domestic business, we continued our growth in the Cycle Resilient Extended Stay segment. Over the past 5 years, we have expanded our extended stay portfolio by over 20% to nearly 54,000 rooms with the segment's pipeline now constituting half of the total domestic rooms pipeline. In the second quarter, we added over 5,000 rooms domestically over the prior year's quarter.

For 8 consecutive quarters, we have grown our domestic extended stay room system size by double digits year-over-year and we expect this higher than industry average growth to continue. This increased footprint provides us with even more confidence in the resilience of our business, given the longer average length of stay and more stable revenue associated with extended stay hotels. And as they have in the past, our extended stay hotels continued to outperform the industry during uncertain times.

We are very proud that for the third year in a row, J.D. Power ranked our WoodSpring Suites new construction brand, #1 in guest satisfaction among economy extended stay hotel brands. This strong guest recognition is translating into increased interest from developers as demonstrated by a 43% year-over-year increase in the number of WoodSpring Suites brand domestic franchise agreements awarded in the second quarter.

With half of the industry-wide economy extended stay rooms currently under construction being the WoodSpring Suites brand, we are well positioned for the future. Now let me discuss how our strategic expansion into more revenue intense segments is positively impacting our economy transient brands. As part of our portfolio enhancement, we have been deliberately exiting underperforming hotels. This approach allows us to open these markets to new owners and maximize market potential for more profitable hotels.

Additionally, over the past year, we have successfully elevated our guest satisfaction scores in the Economy transient segment by delivering enhanced guest experiences through our upgraded product quality. As a result of these actions, our economy transient hotels are outperforming the economy chain scale in domestic RevPAR performance while achieving RevPAR share gains versus competitors. This improved performance enabled us to expand our domestic economy transient rooms pipeline by 8% and execute 42% more domestic franchise agreements in the first half of 2025 year-over-year with the new hotels expected to generate higher royalty revenue than the hotels we exited.

We have reenergized the Country Inn & Suites by Radisson brand. Our recently introduced value-engineered prototype for the brand helped drive an 11% increase in the brand's pipeline over the prior year's quarter. In the upscale segment, we continue to expand our presence, increasing the global room system size by 15% year-over-year to over 110,000 rooms. With nearly 29,000 upscale global rooms in the pipeline, a 7% increase over the prior quarter, we will be providing our guests with even more aspirational locations to visit. As we look to the future, our global pipeline provides a strong platform for long-term growth with 98% of the rooms within our more revenue intense brands.

This means that our pipeline should generate significantly higher revenue compared to our existing portfolio driven by RevPAR premium of more than 30%, a higher average effective royalty rate and a larger room count per hotel. Our distinct strategy continues to deliver strong results, reinforcing our confidence in the long-term outlook. Notably, our focused expansion in the revenue intense segments has elevated the domestic mix of higher revenue-generating rooms to 88% of our system. This improvement in our hotel portfolio has further strengthened our overall value proposition to our guests.

Our guest strategy is tailored to address the underlying consumer trends we are currently seeing and have been focused on for the past several years, such as increasing retirements, road trips and domestic infrastructure investments. As more of our core customers reach retirement age this year, they have increased disposable income and time for leisure travel, seeking brands like ours. Research shows that 1 in 4 baby boomers currently spends 6x more on travel than the majority of millennials and Gen Z cohorts, with gas prices at their lowest level since 2021 and approximately 90% of our domestic portfolio within 1 mile of a highway, we offer travelers the opportunity to take more affordable vacations closer to home without the need to fly.

Additionally, as we have been noting for some time, significant infrastructure investments driven by Gen AI and the reshoring of American manufacturing are fueling new business demand, especially for our extended stay hotels. By making deliberate investments to capitalize on these compelling tailwinds, our enhanced value proposition is driving stronger customer engagement, increasing customer lifetime value, and attracting higher value, more resilient travelers.

We are seeing this in a more favorable guest mix, increased traction in the small and medium business and group travel segments, and the growing strength of our rewards program. We expect these positive trends to further strengthen in the coming quarters and years, positioning us to capture significant future market opportunities. Importantly, we achieved occupancy index share gains versus our competitors in the second quarter even as the industry faced macroeconomic uncertainty. We believe this will contribute to increased loyalty and repeat guests over time. Today, approximately 40% of our guest profile mix consists of business travelers, which we believe is a good balance between business and leisure travel. Importantly, Choice's business travelers have a relatively resilient profile, which is particularly evident in our small and medium business segment performance where revenues were up 13% year-over-year in the second quarter.

We also see ongoing strength in sectors such as construction, utilities and high-tech manufacturing. In addition, our recent investment in an enhanced group sales team and an expanded upscale hotel portfolio continue to pay off. This is demonstrated by the 48% year-over-year increase in revenue from the group travel business in the second quarter, driven in part by small corporate groups and sports travel bookings. Our rewards program is also delivering exciting results, benefiting from the investments we have made this year. We expanded our rewards program to nearly 72 million members, an 8% year-over-year increase as of the end of the second quarter, and I'm especially pleased to share that Choice Privileges was recently named the Top Hotel Rewards Program by U.S. News and World Report and WalletHub, a trusted source for personal finance insights and consumer rankings. These recognitions are a testament to our efforts in creating a more compelling rewards program, including introducing new aspirational hotels and exciting experiences such as music, racing and college sports redemption options, along with added program benefits. Notably, our enhanced rewards program is driving stronger customer engagement.

During the first half of the year, we saw a more than 40% year-over-year increase in the booking window for reward night redemptions, which drove occupancy for our properties further out. Additionally, our rewards program enhancements contributed to the increase in the overall length of stay at our hotels compared to the previous year. As we've highlighted previously, our focus on strategic investments combined with the broader adoption of Gen AI is unlocking significant growth opportunities for both Choice and our franchisees, positioning us for long-term margin expansion and enhanced operating leverage.

In particular, our investments in franchisee-facing technology are empowering our franchise owners to maximize returns on their assets. Solutions such as advanced revenue optimization services, and tailored profitability tools are designed to help drive stronger performance of their hotels. On the guest side, we are elevating the customer experience through the launch of a redesigned Choice Hotels website and mobile app, intelligent marketing initiatives and enhancements to our rewards program, all of which are contributing to stronger customer engagement and increased customer lifetime value.

I'm also proud that we were recently named Time Magazine's 2025 America's Best Midsize Companies list. This achievement is a testament to our strong company culture, where we prioritize our people, foster innovation and seek to deliver long-term value for all stakeholders.

In closing, by successfully executing our strategy, we have transformed the company to be future-ready and established a strong foundation for both near-term stability and long-term growth. We believe that our proactive investments, differentiated value proposition, an asset-light fee-based model have meaningfully enhanced our company's growth profile, enabling us to generate multiple avenues of growth even in the face of an uncertain macroeconomic environment. We continue to grow our significant free cash flow annually, prioritizing the creation of long-term value by enhancing our value proposition, driving growth and returning excess cash to shareholders. I'll now turn the call over to our CFO. Scott?

Thanks, Pat, and good morning, everyone. Today, I will discuss our second quarter results, update you on our balance sheet and capital allocation and comment on our outlook for the remainder of 2025. In the second quarter, despite a weaker-than-anticipated RevPAR environment, we achieved a record second quarter adjusted EBITDA of $165 million, representing a 2% year-over-year increase. Our growth was driven by the expansion of our global rooms, a robust effective royalty rate, strong international business and successful expansion of our margins as we implement technology and provide tools to improve the productivity of our associates.

When excluding the impact of a $2 million operating guarantee payment for a portfolio of managed hotels, which was acquired with the Radisson Hotels Americas acquisition, the adjusted EBITDA would have increased by 3%. Our adjusted earnings per share also reached a second quarter record of $1.92 per share, marking a 4% year-over-year increase. Let me first discuss our key drivers of royalty fee growth, which include unit growth, RevPAR performance and our royalty rates. In the second quarter, our global rooms grew by 3% year-over-year across our more revenue intense, upscale, extended-stay and mid-scale portfolio with total worldwide rooms growing by 2.1%. Our deliberate decisions and strategic investments delivered results across all our brand segments in the second quarter. First, we grew our domestic extended stay room system size by 10% year-over-year, highlighted by a 7% increase in domestic openings.

At the same time, we saw a 6% increase in domestic franchise agreements awarded year-over-year. The Everhome Suites brand continues to gain strong traction with 17 hotels now open, 11 of which were open this year and 55 domestic projects in the pipeline, including 16 under construction as of today. Second, we further strengthened our presence in the midscale segment. Our flagship Comfort brand continues its growth trajectory with a 50% increase in global openings and a 23% year-over-year increase in domestic franchise agreements awarded. Third, we expanded our global upscale portfolio and attracted strong developer interest with a 38% year-over-year increase in domestic franchise agreements executed. Specifically, our Ascend Hotel Collection, a leading global soft brand, reached over 65,000 rooms worldwide and saw a 29% year-over-year increase in domestic franchise agreements awarded. Given the strong demand we continue to receive from developers for our brands, we are focused on continually elevating the strength and quality of our portfolio by exiting select underperforming assets that fail to meet our requirements and standards and on average, under-indexed the rest of our portfolio.

In the second quarter, we achieved global system-wide rooms growth even as we made some of these strategic exits. Turning now to our RevPAR performance. Excluding the tougher comparisons due to the Easter calendar shift to April as well as the benefit from eclipse related travel in 2024, domestic RevPAR declined approximately 1.6% for second quarter 2025 compared to the same period of 2024. Our overall second quarter results declined 2.9%, reflecting reduced government and international travel as well as softer leisure transient demand due to the broader economic uncertainty as well as the Easter and eclipse impacts. As Pat mentioned, we were pleased that despite the macroeconomic headwinds, our strategic investments to improve our brand portfolio and expand our customer reach drove occupancy share index gains versus our competitors.

In particular, our domestic extended space segment outperformed the industry's second quarter RevPAR by 40 basis points and delivered over 3% year-to-date RevPAR growth through June 30. At the same time, our domestic transient economy segment outperformed the economy chain scale by over 3 percentage points achieving RevPAR index share gains versus competitors in the second quarter and also increased its year-to-date RevPAR by over 3%.

Moving on to our third royalty growth lever. We are pleased to report that the continued expansion of our effective royalty rate remains a significant source of revenue growth. In the second quarter, our domestic system effective royalty rate increased by 8 basis points year-over-year. This performance highlights the positive impact of our strategy to drive the growth of our revenue intense brand portfolio and our enhanced value proposition to franchise owners. We are optimistic about the ongoing upward trajectory of our effective royalty rate for years to come as the contracts in our domestic pipeline have a significantly higher effective royalty rate than those in our current portfolio of open hotels.

We continue to strengthen our partnership business, which encompasses revenues from our strategic partners and vendors. Excluding a onetime benefit in 2024 related to our prior credit card partner, this revenue stream increased 16% in the first half of the year and 7% year-over-year in the second quarter, primarily due to higher partnership fees from our co-brand credit card. We're also seeing these positive results in our non-RevPAR-related franchise fees for various services we provide, which increased by 6% in the second quarter compared to the prior year. Expanding our partnership service and fees as well as our non-RevPAR-related franchise fees remains one of our key initiatives, and we believe that we can drive strong revenue growth in the years ahead.

Finally, we expanded our EBITDA margins by 120 basis points during the second quarter as we continue to grow our top line while improving the productivity of our associates and the efficiency of our operations, reflected by a 4% decline in our adjusted SG&A. In the 6 months ended June 30, 2025, we generated $116 million in operating cash flows, including $96 million in the second quarter, and our free cash flow conversion was approximately 50%. Our business continues to produce strong cash flow, which coupled with our well-positioned balance sheet, allows us to execute on our capital allocation priorities. These include investing in growth initiatives and acquisitions while also returning significant capital to shareholders. Year-to-date through June, we've returned $137 million to shareholders, including $27 million in cash dividends and $110 million in share repurchases.

We had 3 million shares remaining in our authorization as of the end of June. As Pat discussed, we acquired the remaining 50% interest in Choice Hotels Canada from our joint venture partner for approximately USD 112 million subject to customary adjustments for working capital and cash. For full year 2025, Choice Hotels Canada's operations are expected to generate approximately $18 million in EBITDA in U.S. dollars, and we anticipate growing this EBITDA through the realization of cost synergies and driving higher revenues as we introduce our full array of brands to this key market, which offers us significant development growth opportunities.

As a reminder, Choice Hotels Canada refranchises over 26,000 rooms in Canada, which were already part of our system before the acquisition. We remain well positioned with a strong balance sheet with gross debt to trailing 12-month EBITDA ratio of 3.1x as of quarter end and total available liquidity of $588 million as of June 30, 2025.

Furthermore, the pro forma leverage ratio accounting for the Canada joint venture acquisition remains at the low end of our targeted range. Finally, I'd like to discuss our expectations for the remainder of the year. As a reminder, in the fourth quarter, we will face tougher comparisons due to the hurricane-related demand we benefited from last year. Reflecting the more uncertain macroeconomic backdrop, which is impacting domestic RevPAR performance across the lodging industry, particularly the mid-scale and economy segments, we are adjusting our domestic RevPAR expectations to a range of minus 3% to flat. The midpoint of this range assumes that the current trends we are observing will continue for the remainder of the year.

For the full year 2025, we are maintaining our adjusted EBITDA outlook range of $615 million and $635 million. The guidance reflects a more moderate domestic RevPAR expectation, offset by effective cost management and the additional earnings from the purchase of the remaining interest in Choice Hotels Canada. We are updating our full year guidance for adjusted SG&A now expected to grow at a low-single-digit rate from the 2024 base of $276 million. We maintained strong conviction in our portfolio's resiliency, our model's versatility and adaptability and the strength of our fee-based business.

We anticipate growth will be driven by more revenue-intense hotels and markets, robust effective royalty rate growth, growth from our partnership revenue streams, strong international business and incremental revenue-generating opportunities from our expanded scale. This outlook does not account for any additional M&A, repurchase of the company's stock after June 30 or other capital markets activity. Today's results are a testament to our strategy's effectiveness and the benefits of our expanded scale and versatile business model, even in a softer domestic RevPAR environment. We intend to keep investing in those areas of our business that will generate the highest return on our capital. At this time, Pat and I would be happy to answer any of your questions. Operator?

[Operator Instructions] And your first question comes from the line of Dany Asad from Bank of America.

So Pat, maybe if we look at your international expansion, just from a strategy perspective, this quarter, you're going direct in Canada, but in other regions like South America and China, they are master franchising. So how do you decide direct versus master franchise in any given market? And should we expect one over the other over time? And then maybe can you just remind us of the difference in economics between the two?

Yes. Sure, Dany. So effectively, the -- if you look at where we are in our international growth strategy, a lot of this goes back to the acquisition we did of Radisson. So we bought that brand at the end of 2022, effectively back half. 2023 was really a focus on the cost synergies, 2024 opened up a number of revenue synergy opportunities. And now in 2025, we're really leveraging that platform plus our existing business to expand internationally. The way we think about direct versus master franchise is really what are the fundamentals in each of those countries. And in markets where small business owners can aggregate capital and there's the correct regulatory environment, those are generally the 2 things that we look for where direct franchising makes sense.

I would add to that the ability for owners to actually acquire the land. And so in certain markets, where we are doing direct franchising. So Canada now, Mexico, Australia, New Zealand, Europe, a good part of South America. All of those factors are present there. And if you look at our mix today, post acquisition of Canada. We're now more direct franchising than master franchising across the international portfolio.

So those are the things that we look for. And as we said in our remarks, the Canadian opportunity, we've been in that market since 1955, built a great business there. Of the 70-year history, we had a 30-year great partnership with our JV partner. But since we acquired 9 additional brands from Radisson, we also have our Cambria brand and our extended stay brands, bringing all of those to be supported by our existing Canadian team just makes a ton of sense, both from an opportunity perspective, but also cost avoidance of going into market in both in the prior world, we were doing both direct franchising for those other brands and the MFA.

So it really is a great opportunity for us to consolidate the operation there, leverage the talent of our team headquartered out of Toronto and really grow our business there.

And your next question comes from the line of Michael Bellisario from Baird.

Two more follow-ups on Canada. I mean, firstly, can you just help us understand the growth outlook there over the coming years. I know, Pat, you mentioned sort of the demographic drivers, but maybe more specifically, how quickly can you open new hotels or convert hotels? And then can you quantify some of the revenue and cost synergies that you referenced maybe on a stabilized basis 2 to 3 years out?

Yes, Michael, I think the dynamics around development and hotel openings and the speed with which to do it in Canada looks very similar to what we have here in the U.S., the dynamics around conversion versus new construction, very similar. So if you look at an extended stay opportunity up there, given WoodSpring and Everhome, those are more new construction brands. So those will take some time, whereas Suburban and Mainstay are more conversion brands. So those could be showing up sooner. I think when we look at the health of that market, the reason we disclosed just some of the growth trajectories there, 5% healthy growth is really positive.

So the other thing is the quality of the product in Canada. The RevPAR there of that system is pretty significant. So it's a good quality product and the franchisees up there, we already have an existing base of 200 who are interested in doing more brands with us. So really having that support team up there, supporting all of the brands, I think, is going to be a really exciting growth opportunity for us.

I think as we get further into the ownership structure and some more details and maybe in the future, we can provide more unit growth expectations for that market. But we're pretty excited by the interest in our brands up there. And as I said, the long history we have with existing franchisees.

And your next question comes from the line of Dan Politzer from JPMorgan.

Another one on international. I mean I think that by our estimate, this is about 6%, 7% of your EBITDA, maybe a couple of points higher now with Canada. You have a long-term expectation -- one, I wanted to [indiscernible] check that, but do you have a kind of a long-term goal or expectation for how this could evolve over time in the coming years as maybe you look to do more of these international deals?

Yes. I think for -- it obviously differs by region. I think if you look at the 7% increase that we saw in EMEA, a lot of that is sort of based off of the existing franchisee base and the opportunities we have for our brands. And they differ -- they do differ by region. So we do see significant upside there. I think what we'll likely do sometime in the future is sort of lay some of this out in a more detailed fashion about where we see those growth opportunities. But as I mentioned in the remarks, some of these are foundational, so what we are seeing in China, for instance, is partnering with a very strong player in that market, bringing a couple of our mid-scale brands there with a pretty significant opportunity. It's really a look into these markets and looking at the right partners that we have on the MFA side. And then on the direct franchising, as I said, particularly in the Americas region, we are looking to grow the system size there, very similar to what we experienced here in the U.S.

And Dan, a follow-up on your question on just the absolute size. Yes, you're right, it's about 6% of our current EBITDA prior to the acquisition of Choice Hotels Canada. And what we're really excited about is we've been able to really grow that EBITDA during the quarter, that was up 10% even before the acquisition. So really a strong opportunity for us, a lot of white space where we think we can grow at a more accelerated fashion for the company.

Got it. And if I could just squeeze in a quick follow-up. Just in terms of the RevPAR cadence, you guys called out and reminded us that, that fourth quarter hurricane benefit, which we have from the prior year to compare against, is there any way to kind of think about or frame out the cadence of RevPAR growth for the rest of the year, just given some of those puts and takes?

Yes. Just as a reminder, what we talked about in the fourth quarter of last year is we did see about a 125 basis point lift related to business delivered from FEMA accounts, the Red Cross business as well as increased spending from the restoration crews. For the rest, in terms of the pace for the rest of the year, really where our guidance is in the midpoint is to think about our pace for the second quarter to continue through the rest of the year, that would hit about the midpoint of our guidance. Obviously, any improvement to that would be towards the top end and any softness would be towards the bottom end.

And your next question comes from the line of Patrick Scholes from Truist Securities.

My first question, in the prepared remarks, everything sounded pretty uniformly positive. But then on the other hand, you're taking your RevPAR guidance down where you called out basically current trends as the driver for that. I'm wondering if you could talk a little bit more on specifically what in those current trends is softer now than your previous expectations, customer segments, geographies, et cetera? And then I have a follow-up question.

Yes, Patrick, I mean, the 2 headwinds and the whole industry is experiencing there's a really international inbound and government travel. Those are the 2 things that have sort of modestly set back RevPAR expectations. I think when we -- the reason we're positive is if you look at the U.S. consumer, consumer confidence is trending up, credit card delinquencies are flat. We pointed out in our remarks, gas prices are lower, people are driving more than flying. And then you've had some pretty significant catalysts in the kind of middle of the year here. You've got certainty now on tax reform. You've got a solid labor market, the trade policy is sort of settling out. Corporate profits are healthy. And then you've got these catalysts for growth, significant investments in both infrastructure with Gen AI and all of the efforts that we see going on around that and then the reshoring of American manufacturing. So you couple that with the limited hotel supply growth that the industry has seen for the last couple of years and particularly in our segments, it gives us a lot of optimism about the future of RevPAR growth.

So that's why I think we've had this sort of very choppy first half of the year. The upside case is pretty strong when you look at the industry fundamentals. And so that's why when we kind of look at the RevPAR environment, those are the positive aspects. But we are still, as we mentioned, seeing softness from government travel and international inbound.

Okay. And then my follow-up question, this actually has to do with an article that came out -- a news article a couple of weeks ago regarding a loan that you had made in San Jose to a Motel 6 property and a Super 8 property, neither of which I believe are your brands for $22 million that appears to, per the article, defaulted. I guess my question is why is Choice making loans to competitors' brands?

And secondly, are there any other loans of size similar like this that we should be aware of?

Yes. So we -- those loans were not to a competitor brand. So they were around some new product that we had brought in at our Park Inn brand last year as we launched it. So typically, we do use our balance sheet to launch new brands. I think you're well aware of the investments we've made over the years in Cambria and Everhome to launch it. We had a previous Motel 6 owner that was bringing a large amount of properties over to the Park Inn brand to get that brand started and we did make a loan on 1 of the properties. That owner has had some financial difficulties, but we are working through the collection process on that. We do detail our overall loans, which are predominantly towards Cambria and Everhome in our financial disclosures, but nothing of significance other than that, that has any financial difficulty at this point.

Okay. Any other significant loans of size that are in good standing? That's my last question.

Yes. We don't typically do lending. Typically, our capital support programs have been more in joint ventures and building hotels. On the books today, we have just under $80 million of loans on the books spread across multiple properties.

It seems so unusual.

And your next question comes from the line of Robin Farley from UBS.

Great. Just wanted to make sure I understand, looking at your global net system rooms, the guidance is for 1% growth this year, and that didn't change since last quarter, but it seems like the agreement in China and would already -- I know the rooms in Canada would have been in your system already, but it does seem like China would have added to that. So just wondering if that's not included in that Global Net Systems guidance yet or if it's just -- maybe some domestic deletions were part of that?

Yes, Robin, I think when you look at the whole picture, you start with in the quarter, up 2% in global rooms. When we look at our franchise agreements that we've awarded, if you take out the onetime Westgate agreements from last year, we're up 5% year-over-year upper mid-scale, mid-scale awarded contracts were up 15%. Extended Stay remains strong. And as we talked in our remarks about the economy segment, we've really been looking at removing lower-performing properties in that segment. And that better product quality in the Economy segment is really giving us the confidence to sort of continue to exit out underperforming properties because we've got such strong demand in that segment, and you saw that in our numbers. So what we're looking at from a total unit growth is the benefits of the future contracts that we've got, either already awarded or apps that we have received or in-house and also the strategic terminations that we're doing along the way.

And Robin, I would say we executed that Chinese agreement towards the beginning of the quarter, so that was contemplated in our previous guidance.

Okay. Great. And then just also wanted to follow up. There was an operating profit guarantee in this quarter that was a little bit of an impact on your EBITDA. Are there additional operating profit guarantees and just kind of this year, next year, any future years just for us to think about?

Yes. As you're aware, the management business is not a large part of our business. We did acquire that with the Radisson Hotels Americas. So we manage 13 hotels. A portion of those are with 1 owner, there is an operating guarantee across a portfolio of hotels. The total amount that potentially could be paid under that over the life of the agreement is $20 million. It's an annual valuation of that agreement. So we did some softness in some of the markets as well as a renovation of one of the hotels have put us a little bit behind on the performance. But at this point in time, we evaluate that going forward and don't expect to pay anything more material than what we've recorded today, but continuing to monitor the performance of those hotels.

And your next question comes from the line of Meredith Jensen from HSBC.

I know in the past, you've spoken about managing the balance between occupancy and rate as part of revenue optimization. And so I was wondering if you could speak to sort of how you're thinking about driving incremental occupancy, particularly now as you have sort of a different mix of -- with higher variable service costs associated to sort of higher revenue intense brands and sort of how you and the franchisees are approaching this trade-off in this kind of environment?

Yes. Meredith, it's a great question, and it's actually kind of a reflection of how our franchisees, I think, are managing through this uncertainty. The good news for us is that they are hanging on to occupancy and actually taking occupancy share gains, which is a reflection of the primarily limited service nature of our brands, and I think it's really important to understand that fact. So yes, we are in more revenue-intense segments, but that doesn't necessarily mean the cost per occupied room is higher. You look at extended stay, for instance, where the cost per occupied room is very low, but the revenue intensity of those brands is higher because of the length of stay and the room count in the hotels.

So our owners have been managing this through this time of uncertainty, looking to hold on to customers and because of the limited service nature of those brands, the profit margins on each room makes sense for them. So we see it as a positive sign. And if you're well aware of sort of past cycles, you need occupancy in order for rate gains to return. And so we're pretty pleased to see that occupancy is not dropping as well as rate. So to have occupancy be stable or slightly up is a positive sign for the future.

That's super helpful color. And very quickly, I was wondering if you could just clarify how many of the Everhome and Cambria you still have over in ownership and how you're thinking about recycling nodes? And lastly, sorry to toss one more in, if you could discuss conversion activity internationally, in particular.

Yes, I can -- I'll start with the ownership of hotels. So today, we have 13 hotels that we own and operate. Those are 8 Cambrias, 3 Radissons and 2 Everhomes.

Sorry, I was going to answer your other question, Meredith, on conversions on international. It's very similar to the U.S. business. I mean I would say in Europe, given most of those are leaseholds, it's a primarily conversion business there. But when you look at Canada, you look at LatAm, you look at Australia and New Zealand, some of those markets, the conversion and new construction mix is very similar to the U.S.

And your next question comes from the line of Alex Brignall from Rothschild & Co Redburn.

Could we just look at the U.S. net unit evolution? I guess in there, there's a little continued reduction in Radisson, but just across the beginning of the year, it's down over 10,000 rooms. So maybe you could just give us some detail on how much of that is sort of intended churn of low revenue room that you've taken out and whether you could give us the gross and net number within that. And then just on the 3% that you said in terms of the higher-end brand growth, again, would that include the China partnership agreement from the Ascend Collection, would that be within that number? Because obviously, that's a relatively big number.

Yes. To answer your first question on Radisson. So 1 of the things that I think we talked about in the first quarter is skewing the results a little bit is we did have more of a distribution agreement that came over with the Radisson acquisition with the Treasure Island hotel in Las Vegas represented close to 3,000 rooms. So there was just a loyalty program arrangement that paid for loyalty program members that stayed there. So it was something that when we acquired Radisson, it was a known contract that was expiring that we knew was leaving the system. So it has skewed the room numbers a little bit, but it was not a meaningful revenue contributor. I'd say, in terms of the other declines, again, as we purchased that brand, we understood that there were some underperforming properties. And with the success we've had in upscale, we thought it was the right thing to do is to make sure that we have the right product going forward for our guests.

So the rest of it has all been planned of what we expected for the Radisson brand to churn. We do expect in kind of '26, '27 to start seeing more growth there. Certainly, we've seen that on an international basis. That's a very strong brand in the LatAm. So we've been pleased with kind of what the global story looks like for Radisson. In terms of your numbers, I think you're talking about our rooms growth to date. That does not include -- we have not opened yet the Chinese hotels yet. So that 3%, that's still sitting in the pipeline for the Chinese hotels and not included in the year-over-year growth rates of our overall portfolio through June 30.

Okay, that's fantastic. And I guess a follow-up on the second question then. How much of the growth in the revenue intense segments is coming in the international business, where obviously there's a much higher mix of kind of master franchising and lower fee agreements, which, of course, dilute the overall group royalty rate.

Yes, I would say outside of the Chinese partnership, most of the growth we have is coming from the direct markets, which are a much higher royalty rate, as we've talked about. So the growth we've had in Europe with our partnership with Zenitude in France, we've signed them with a multiunit developer in Spain. All those are direct franchise agreements that are paying on that higher royalty rates. So outside of the Chinese partnership on the indirect MFAs, it's mainly direct franchising growth.

And it's -- from a revenue intense perspective, our economy brands really aren't represented in a meaningful way. So it's almost 100% from an international pipeline is in those revenue intense segments.

Thank you. And there are no further questions at this time. I will now hand the call back to Mr. Pat Pacious for any closing remarks.

Thank you, operator, and thanks, everybody, again, for your time this morning. We will talk to you again in November when we announce our third quarter 2025 results. Have a great day.

This concludes today's call. Thank you for participating. You may all disconnect.